Topic 3: Follow These 6 Steps Towards Creating Wealth
You can also take this as an opportunity to review your investments and learn from your past financial mistakes to take corrective measures and embrace newer ideas. While doing so, aim to manage your money prudently and endeavour to make it work harder to generate serious wealth to meet your financial goals.
Here are some wealth creation ideas which you may consider
Rebalance Your Asset Allocation: A crucial step that helps in wealth creation is proper and timely asset allocation. If you feel that your equity exposure is high, you may consider switching at least 30% of your portfolio to debt instruments. Similarly, if your investments are heavily tilted to debt, you may consider pruning and restoring balance. At the current juncture, when stocks are trading at a historical high, it is advisable that equity exposure should be restricted to 65-70% while debt should take care of the rest. A rebalanced portfolio not only helps in protecting the portfolio from market headwinds, it also immensely aids wealth creation.
Start a SIP: A systematic investment plan or SIP should be among your top investment vehicles. Based on your financial goals, risk-taking ability, and tenure, decide on the monthly investment amount through SIP. Only a proportionate SIP amount can yield the desired wealth. In case you are not sure of the amount, use online SIP calculators or take advice from an expert regarding the same. For instance, to accumulate Rs. 1 crore in 20 years, you need to invest a little over Rs. 7,500 every month in funds that offer 15% compounded annual returns. If your investment or returns are lower, you may not meet your target.
Invest In Gold: Investment in gold can act as a hedge against inflation and help diversify your overall portfolio. If you haven’t invested in gold yet, you may consider investing in the yellow metal through Gold ETFs or Sovereign Gold Bonds (SGBs) rather than physical gold. Gold ETFs and SGBs provide better returns, safety, and easy handling. Given the current uncertainty in the financial market and weak economic scenario, gold may turn out to be a great investment in the event of deep cracks in the financial market. Nevertheless, it is advisable to take an exposure of not more than 5-10% in investment instruments with gold as underlying assets.
Invest In Stocks: If you have a considerable lump sum corpus and have a high risk-taking capacity, you may consider direct stock investing. Take help from market experts, do your research, and figure out the 10 most promising stocks with a 2-3-year investment horizon before investing in them. Alternatively, you may start SIP in these stocks every month if you don't have a big corpus. Suppose you have a surplus of Rs 20,000 every month, you may consider utilising this sum in buying smaller quantities of the selected stocks. This way of investment will give you the benefit of averaging out your holdings while creating wealth in the long term.
Invest In A Balanced Advantage Fund: If you are apprehensive of the stock market but desire to make money from equities, you can consider investing in balanced advantage funds (BAFs). These funds have a dynamic asset allocation strategy and tend to rebalance your portfolio daily depending on the stock valuations. BAFs are conservative in their investment approach in equity, and so offer a steady return and reduce erosion of your investment value. Typically, such funds sell high and buy low. At times, there are phases when such an asset allocation strategy of the fund helps it beat the key stock indices as well. If you currently have an equity portfolio with reasonable gains, you may shift up to 30-40% of your total equity assets to BAF in current times through lumpsum investment. If you are a new investor and want to taste equity investment with safety in mind, BAFs are suitable for you.
Consider Investing In Real Estate: Given the current prevailing historically low home loan rates of as low as 6.4%, buying a home for investment could be a nice wealth creation idea. However, do consider your current financial situation as home buying is a big-ticket investment. If it fits in your current assessment, buying a house could be highly rewarding. Do consider the locality, resale value, EMI you can afford, and other out-of-pocket expenses before investing in real estate.
Here are some wealth creation ideas which you may consider
Rebalance Your Asset Allocation: A crucial step that helps in wealth creation is proper and timely asset allocation. If you feel that your equity exposure is high, you may consider switching at least 30% of your portfolio to debt instruments. Similarly, if your investments are heavily tilted to debt, you may consider pruning and restoring balance. At the current juncture, when stocks are trading at a historical high, it is advisable that equity exposure should be restricted to 65-70% while debt should take care of the rest. A rebalanced portfolio not only helps in protecting the portfolio from market headwinds, it also immensely aids wealth creation.
Start a SIP: A systematic investment plan or SIP should be among your top investment vehicles. Based on your financial goals, risk-taking ability, and tenure, decide on the monthly investment amount through SIP. Only a proportionate SIP amount can yield the desired wealth. In case you are not sure of the amount, use online SIP calculators or take advice from an expert regarding the same. For instance, to accumulate Rs. 1 crore in 20 years, you need to invest a little over Rs. 7,500 every month in funds that offer 15% compounded annual returns. If your investment or returns are lower, you may not meet your target.
Invest In Gold: Investment in gold can act as a hedge against inflation and help diversify your overall portfolio. If you haven’t invested in gold yet, you may consider investing in the yellow metal through Gold ETFs or Sovereign Gold Bonds (SGBs) rather than physical gold. Gold ETFs and SGBs provide better returns, safety, and easy handling. Given the current uncertainty in the financial market and weak economic scenario, gold may turn out to be a great investment in the event of deep cracks in the financial market. Nevertheless, it is advisable to take an exposure of not more than 5-10% in investment instruments with gold as underlying assets.
Invest In Stocks: If you have a considerable lump sum corpus and have a high risk-taking capacity, you may consider direct stock investing. Take help from market experts, do your research, and figure out the 10 most promising stocks with a 2-3-year investment horizon before investing in them. Alternatively, you may start SIP in these stocks every month if you don't have a big corpus. Suppose you have a surplus of Rs 20,000 every month, you may consider utilising this sum in buying smaller quantities of the selected stocks. This way of investment will give you the benefit of averaging out your holdings while creating wealth in the long term.
Invest In A Balanced Advantage Fund: If you are apprehensive of the stock market but desire to make money from equities, you can consider investing in balanced advantage funds (BAFs). These funds have a dynamic asset allocation strategy and tend to rebalance your portfolio daily depending on the stock valuations. BAFs are conservative in their investment approach in equity, and so offer a steady return and reduce erosion of your investment value. Typically, such funds sell high and buy low. At times, there are phases when such an asset allocation strategy of the fund helps it beat the key stock indices as well. If you currently have an equity portfolio with reasonable gains, you may shift up to 30-40% of your total equity assets to BAF in current times through lumpsum investment. If you are a new investor and want to taste equity investment with safety in mind, BAFs are suitable for you.
Consider Investing In Real Estate: Given the current prevailing historically low home loan rates of as low as 6.4%, buying a home for investment could be a nice wealth creation idea. However, do consider your current financial situation as home buying is a big-ticket investment. If it fits in your current assessment, buying a house could be highly rewarding. Do consider the locality, resale value, EMI you can afford, and other out-of-pocket expenses before investing in real estate.