Despite the humongous challenges posed by the COVID-19 pandemic, India added several new billionaires and millionaires in the year 2020. According to the Hurun Global Rich List 2021, India ranked 3 rd highest in number of billionaires globally, with a combined wealth of $596 billion in 2020 and there were 412,000 dollar-millionaire households in the country with a net worth of not less than Rs. 7 crores. Many of those who made it to the billionaire and millionaire clubs are self-made and first-generation entrepreneurs.
One of the biggest reasons the wealthy are getting wealthier is because they don’t invest in traditional investments. They invest in businesses, because that is the fastest way to multiply wealth. To create sustainable wealth, it is not necessary to start a new business. Anyone can just buy a portion of an existing business which is doing well by investing in its equity.
However, creating sustainable wealth is not a single-step process. There are several factors that work in conjunction to create wealth.
Let’s take a detailed look at these steps:
1. Get the basics of personal finance right
To create wealth, it is important to invest a portion of your monthly income and spend whatever is left. However, there are many who do quite the opposite. They spend first and invest whatever is left from their monthly income. As the result of a lack of proper budgeting and overspending because of easy and instant access to credit, such people often end up in huge debts with piling interests leading to a vicious debt trap.
Besides, there are many who buy latest cars and fancy gadgets to simply act rich. In the process, they end up spending their money, which could have been invested for a better future. So, instead of wasting your money on buying things just to act rich, spend your money wisely and invest the balance for long term.
2. Develop a wealthy mindset
Remember the popular saying “Faith can move mountains”? Developing a wealthy mindset is all about spending wisely, creating multiple streams of income, and investing in the right instruments to multiply your wealth without taking excessive risks.
Wealth creation is possible only when you develop a wealthy mindset. The greatest testimony to this comes from none other than legendary investor Warren Buffett who once said “I always knew I was going to be rich. I don’t think I ever doubted it for a minute.”
3. Invest in the right instruments
Traditional investments like PPF, post-office deposits and bank fixed deposits carry zero/low risk but can never create wealth because of their low returns. By investing in equity, investor can not only create wealth at a faster pace but also beat inflation.
Equity as an asset class has generated the highest returns over the last several decades, beating all other investment options by a huge margin. It is true that equity investments are subject to high risk, but the risk can be minimized by investing in fundamentally sound stocks for long term after proper research and by remaining invested through market ups and downs without panicking. For instance, even a nominal investment of Rs.10,000 in stocks of fundamentally sound companies like Asian Paints, HUL, TCS, Maruti, MRF, Page Industries, Bajaj Finance, HDFC Bank etc. have turned in crores over the last 2 decades.
4. Start investing in equity as early as possible
Investing early in life gives you a longer investment horizon and adequate time for your investments to generate more returns. Additionally, when you are young you can take more risks. A golden rule of investing in equity is 100 minus your age. Which means if you are 25 years old, you should allocate 75% of your investments to equity and balance in debt instruments.
5. Be patient with your investments
Building sustainable wealth requires a lot of patience and time. Every rupee that you invest wisely can multiply with time because of the power of compounding, which the world’s greatest genius Albert Einstein described as the & “Eighth wonder of the world.” Most successful investors attribute the remarkable growth in their wealth to the art of remaining patient.
Therefore, in an era with huge wealth disparity where people with nothing, people with something and people with everything co-exist, equity investment offers everyone an opportunity to create sustainable wealth. In case you need expert help in identifying the best stocks for wealth creation you can always get in touch with a professional equity advisory service like ours.
Views expressed above are the author’s own.
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