Wealth creation has no one size fits all, it all depends on one’s income, aptitude to take risks. Creation of wealth is a long process that requires patience and commitment towards saving and investment. And mostly, one needs to keep investing her returns over and over again to maximize the benefits. Starting early and opting for options that are fruitful in the long run are key. Here are some tips for beginners.
1) As the saying goes, time is money, so savings should begin as soon as one starts earning. This gives your money time to grow and can later benefit with compound growth. For instance, if a 22-year-old individual begins investing Rs 50,000 annually in Public Provident Fund (PPF) in 2020 for 15 years, then he/she will be able to build a corpus of Rs 13.56 lakh by the time he/she turns 37. (Calculations made assuming that the current interest rate of 7.1% per annum remains fixed for 15 years). The investor can utilise this tax-free corpus to further build retirement fund or make down payment for her dream house or bring it to use later.
2) Another good investment option for those looking for flexible and higher returns is Mutual Funds. You can increase your mutual funds exposure with any surplus amount or increase in income.
3) Once you have sorted an investment portfolio, one can maximise returns by regularly reinvesting the returns and making small but regular investments can grow much bigger than a large investments done later in life.
4) An investor must always invest according to their ability to take risk (risk tolerance) and not their willingness to take risk (risk appetite). If you are young, you will have a high risk appetite, but if you are young and struggling to pay your debt, then your risk tolerance will be lower even if you have a high risk appetite. On the contrary, if you have adequate savings after paying all your debts and are nearing retirement age your risk tolerance could be higher.
5) Those with lower risk appetite prefer to invest in fixed deposits for assured returns. To maximise gains, one must avoid investing the whole corpus in a single FD and instead opt for FD laddering technique. Under this, an investor can do multiple FDs with different tenures and gives them an option of reinvesting.
Focus should always be on saving more and spending less when creating wealth. One must segregate the income to get an idea about how much can be saved and invested.