5 Simple Steps for Wealth Creation

The problem with simple steps is most people do not believe it.

Someone asked me suggest 3 shares which will make me good gains over the next 10-15 years.

I said, if you are not planning to actively manage, it makes sense to invest in 3 mutual fund schemes.

He said; no no, i want good stocks.

I said, I can tell you 4-5 shares in my portfolio take your pick. HOWEVER i review it on a Quarterly basis, may buy, sell, trade,…so you run the risk of not keeping in touch with me & showed him the list containing Hdfc, Hdfc bank, Coromandel, Tata Motors, Infosys,  L&T.

He said….. these everybody knows!!

5 Simple Steps

  1. Spend less than you earn: On a month to month basis you may be living within your means, but look at those times when you are worried about who will pay your credit card bill. ALSO putting away money for ALL your future goals like marriage, children, children’s goals, retirement….is what one means by saying ‘spend’, not just daal chawal.
  2. Borrowing is avoidable: If you have money use it. I found a man earning Rs. 5 lakh a month being encouraged to take a Rs. 12L loan to buy a car. I said wait for 3-4 months, surrender one stupid ULIP and the car will be yours. Attitude towards debt HAS to be ‘Shit, I hate you, and will touch you ONLY IF I HAVE TO.
  3. Cars and Airconditioners have a greater running cost per year on fuel MUCH more than the EMI. See if you can afford that.
  4. Save, Invest and take a term insurance: Medical insurance is not much of an option if you are over 35 years. Till then if you depend on company medical cover, it is not so scary, but as a rule, if there is a risk it should be covered. Simple Risk Rules.
  5. Take care of your health: I know a 87 year old man spending Rs. 1000 a YEAR on medicines, and one 55 year old spending Rs. 3800 p.m (and to be spent for the rest of her life). Do you need a PhD in maths to know who will have more money in the bank, assuming the corpus is not very different?

Seriously, there are zillions of such things – and you also know most of them, the question is do you do it?

Life is about doing, not just knowing.

Who is the No.1 ENEMY of your Investment?

Let me give you some options before you decide the Enemy.

  1. The Middlemen who sold you the Financial Products
  2. The Strategies you followed while investing in Asset Class / Products
  3. YOURSELF

I came across to a tweet from Kalpen Parekh, President DSP Mutual Fund.

The problem is with INVESTORS, but not with the MARKET.

DSP Equity Fund is one of the oldest fund of DSP Mutual Fund. The fund has generated 20% returns till date. However, the number of investors who stood with this fund for 24 years is less than TWENTY FOUR!!

 I am not defending DSP Mutual Fund or a fan of the DSP Equity Fund. This is just an example which I am sharing.

My point is to make you aware about who is your biggest enemy in your investment journey.

RETURNS CONSISTENCY since INCEPTION

Source: Advisorkhoj
Source: Advisorkhoj

The returns consistency for 20 yrs plus is 17.64

Above data indicates that the journey of 24 years it not smooth. It is kind of roller coaster ride for the investors.

Hence, as per the claim of Mr.Kalpen Parekh, the number of investors who stood with this fund for 24 years is less than 24.

It is easy to say that invest for long term and expect the returns like 15% to 20%. However, during the downtrend where the product or asset gives you -30% to -50% returns, then it requires guts to HOLD and BE CALM.

JOURNEY IS TOUGH, BORING, AND REQUIRES A LOT OF MENTAL STRENGTH to generate such decent returns. But it is not impossible either. The only thing that required is the investor’s MEDIATIVE MIND.

At a 7% return, Rs.1 today is worth Rs.15 in 40 years. But the problem is we want Rs.15 INSTANTLY or AS SOON AS POSSIBLE. Wealth creation is BORING and LONG-TERM process not INSTANT NOODLE.

The BIGGEST ENEMY in your INVESTMENT JOURNEY IS YOU and YOUR MINDSET.

Try to CONTROL IT and MEDIATE as much as possible!!