1. Start investing today –Investing is a choice that you must make at the right time and history has shown that the time is always right. Especially for growing economies like India, long term value investing is a great tool for wealth creation. It is a disciplined approach of wealth creation that builds foundation for your future. Example- At age of 25, if you start investing 5000 per month and money grows at 12% per year, then at age of 60 you have 2.70 crores. Just a delay by 1 year (or 60000 less), will make your savings to be 2.40 crores at the age of 60 years. That is you have 30 lakhs less, just because of 1 year delay. This is because of power of compounding.
2. Nurture the habit of investing – If you had invested 1 lac in sensex in 1984, it would have become 1 crore in 30 years, i.e 100X multiplication. In equity market, compounded interests are boosters in your long term wealth creation process. Just like we spend regular, there is a need that we invest regularly. Systematic investment plan is the best way to cater this need of ours. Investing small amount monthly, inculcates a habit and gives. Usually people invest what remains post spending. The equation should be expensing what is left post investing.
3. Invest in long term assets- Value investing is long term investing! Learn the difference between savings and investing. Wealth is created exponentially by staying invested for a long term. Take the example of the 100X study mentioned above. So today, commit yourself for a long term investment for your financial goals. Usually what we have seen in our experience of 25 years is initially investor has long term time horizon, but then emotions come into play and his long term get converted to short term. This should be avoided for wealth creation.
4. Focused Portfolio – From our childhood we are trained to be focused to achieve the higher productivity. It works the similar way with any wealth creation tools. Too much of diversification is difficult to manage and keep a track of. It is advisable to focus on the less diversified portfolio which is adequate and manageable. This year, diversify your portfolios adequately but not unnecessarily. Usually over diversification leads to over lapping which negatively effects our returns. I have seen some new investors who have every fund in their kitty in the name of diversification. This usually happens when we are not confident about our research or study. Having a focused portfolio is always much better. It also makes tracking easier.
5. Proper Research– Knowledge is the best weapon. It is the most important investment everyone must make. Try and learn about your investments. If you are investing in equity asset class, learn as much about the companies as you can so that you understand the worth of your investments for a long term. Updating your knowledge periodically gives you a perspective to anticipate the future performance. Or buy mutual fund or stock through an advisor who you think is good in research. Always focus on research and give it value and due consideration. Investing without research is dangerous just like cycling without learning how to cycle.
CA ANANT LADHA