by Wealth creation is the process of investing in different asset classes where the investments will help in fulfilling key needs. These investments should also be self-contained that can generate a stable source of income, helping one to fulfill their aspirations.
The wealth creation process will be most effective if started early. Starting investments during the early stages of life will give a head start for achieving goals. It also helps in generating higher growth in the long term. This is due to the power of compounding. Power of compounding is a concept that will help in building a considerable corpus in the future. The concept of compounding revolves around reinvesting the returns back into the fund to earn higher growth. Therefore, the longer one stays invested, the higher will be the gain in wealth.
Wealth creation is a process of investing in multiple asset classes that eventually help in meeting one’s livelihood needs. Therefore, wealth creation as an investment strategy plays a significant role.
No one really knows what the future holds for them. Hence, it is better to start planning for the future from the beginning. Starting investments early will help in creating wealth in the long term. Short term investments will not always create wealth.
Each one of us will reach a point where we are unable to work any longer or earn an income. Planning for a safe and secure livelihood in the future is what wealth creation is all about.
Factors
Goal based investing
Goal based investing is the best way to measure one’s financial success. All of us have goals and dreams about the future. Prioritizing and achieving one goal at a time will give the utmost satisfaction. To do so, one should list down all the goals along with timelines and start investing towards them. Starting small and early will help in wealth creation. Having a separate investment fund for each goal will help in achieving them sooner. Therefore, aligning investments to financial goals will help individuals to create wealth.
Retirement planning
The benefits of investments are realized to a greater extent during post retirement years. Having a separate retirement fund will help investors in leading a stress free and healthy retirement. Retirement is the time where one’s savings or investments do the work for them. To create one such fund, it is important to start early and invest regularly.
Regular income
Investments into good assets will help in generating alternate sources of income. For example, investments in equities, mutual funds or debt instruments will help in generating income through interest or dividends. Therefore, during retirement, these investments will be an additional source of income that will help one in retiring peacefully and have financial independence. Also, in times of emergencies or health crisis, these investments will help in addressing the contingencies.
Strategies
- Make money. Before you can begin to save or invest, you need to have a long-term source of income that’s sufficient to have some left after you’ve covered your necessities and debts.
- Save money. Once you have an income that’s enough to cover your basics, develop a proactive savings plan.
- Invest money. Once you’ve set aside a monthly savings goal, invest it prudently.
Principles
Fundamental Factors
The returns an investment generates will be based on its fundamental factors. Analysing fundamental factors only will lead to a long term success. There is a lot of difference between taking one right investment decision by fluke and taking right investment decisions regularly by analyzing the fundamental factors.
Risk Vs Safety
Whatever the long term savings you have got you can invest in risky assets like equity funds. You will be adequately rewarded for taking risk in the long run. Whatever the short term savings you have got you can park it in FDs or debt funds.
Investing your long term money in safe avenues will be a destruction to create long term wealth. You will not be able to beat inflation. Similarly investing your short term money in risky investments is also dangerous.
Asset Allocation
Depending upon your financial goals, you need to arrive at the required rate of return from your investments. You need to decide what kind of allocation needs to be given to different kind of investment avenues like Fd, Debt funds, balanced fund or a high risk Equity Funds.
