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Wealth cannot be accumulated through addition but is created through multiplication
Bajaj Capital / 12:00 Apr 17,2008

Wealth Creation

 

The amount of wealth a person owns becomes the subject of envy or discussion amongst his peer group, friends and relatives.  

 

There are only a lucky few who have become millionaires overnight or are actually born with a silver spoon in their mouth. Rest of the affluent lot that we see around us have actually made it big for themselves by working hard and smart. They had their plans clear and saving / investing gained priority for them over consumption and this is how over the years, they were able to amass wealth and become, what we in common parlance call, ‘Rich and Wealthy’.

 

It is a truth universally acknowledged that wealth cannot be accumulated through addition but is created through multiplication. This means that you can create wealth by judiciously investing your savings across different asset classes and not by adding cash to your Savings Bank A/c.

 

As you embark on this goal to create wealth, first decide how much amount you want to accumulate and in how many years. Based on these details, calculate the amount that you should be saving / investing periodically and carry out the feasibility analysis of the result so attained. Thereafter, invest the amount in a suitable asset allocation towards the achievement of your goal of wealth creation.

 

As you decide on the avenues to invest in, make sure that you consider the following factors towards making an informed decision:

 

·         Time Horizon: It means the tenure for which you will invest your savings. The time horizon of your investments should match the time horizon of your goal.

 

·         Asset Allocation: Choosing the right mix of asset classes, while keeping in mind your risk appetite is very important.

 

·         Power of Compounding: As you invest systematically and regularly towards the achievement of your goals, you tend to benefit from the Power of Compounding, thereby improving the overall return on your investment. This is how it works:

 

By investing Rs.5000 per month for 5 years at an expected return of 15%, you can accumulate a corpus of Rs.4.05 lac and this same amount invested per month at same return expectation will grow to Rs.12.20 lac over a term of 10 years. Also, the rate of return that you earn has a great bearing on the overall portfolio growth.

 

Simply stated, if your goal is to create a significant amount of wealth, you should start investing for long period of time, in a variety of investment avenues, suiting your risk profile


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