Wealth creation – Key things to keep in mind – Economic Times

Wealth creation is often misinterpreted with investing. Investing can be the first step, but wealth creation is rather a big concept to implement. When we talk about wealth creation, a lot of popular words are spoken such as patience/staying invested, time horizon, taxation, compounding, volatility, advice etc. Here I would discuss a few of them, as getting the basics correct resolves most of the problems.

Patience/staying invested
Investing is like growing a mango tree; it requires a great deal of patience & time to watch it grow. But when it is grown it gives fruits in the sun-baked summers. The same is the case with investments, choose the right investment & then stay invested with patience. It pays back when it is required the most.

Time Horizon
Time horizon is an important milestone to decide before investing. Time horizons can be decided by attaching goals or requirements of cash flows. Goals can be anything from vacation, child education, buying a car, buying a home, retirement planning etc. whereas cash flow requirements in short term can be different for individuals & corporates. If we keep these in consideration then we can choose the right investment option.

Taxation
It is always wise to find the best investment option which can give you a better edge on the taxes. There are options available that can save your income tax, but also can offer you more efficient tax treatment. The only need is to identify & select the right option for you.

Compounding

“My wealth has come from a combination of living in America, some lucky genes, and compound interest- Warren Buffett.” Compounding is a critical aspect of wealth creation, choose the right investment option & then stay invested. Starting early can give you the better benefit of compounding, this can be understood by following example:

Starting @ age
25
30
35
40
Total invested amount till 60 year Age* 1,05,00,000 90,00,000 75,00,000 60,00,000
Valuation at 60 year Age (@ 10%) 9,57,06,968 5,69,83,148 3,34,47,262 1,91,42,422

*SIP amount @ 25000/- per month
*assuming 10% p.a. returns

* The rate of return is assumed to be 10% in the current illustration. The rate of return may vary higher or lower depending on the conditions of the equity markets.

Volatility
The market can be highly volatile, …….

Source: https://economictimes.indiatimes.com/industry/banking/finance/banking/wealth-creation-key-things-to-keep-in-mind/articleshow/90074242.cms