Each one of us wants to create wealth for ourselves and future generations. You earn, save and invest money in different financial instruments hoping you will achieve our goals. You read financial content, discuss with friends, hear an expert speaker, and form an opinion about wealth creation.
However, not everything you know is true. Having interacted with investors over the years, we have found there are wealth creation ideas that many investors believe to be true, but they are far from reality.
Below are the top 5 wealth creations myths that have to be busted so you can do well in your financial journey:
Starting late is okay. I can invest more later and create wealth
At the start of a career, everyone wants to enjoy life. You have started earning, and you must be focused more on the dreams you have seen all these years- visiting your favorite destination, going out with friends on weekends, etc. Investing is not on the list. After a few years, you learn about the importance of saving and investing. Yet, you delay investment because you think you have no liabilities, and they have years ahead of them to save and invest.
Starting early does make a difference, and the difference is significant. Wealth creation is more about the time you give your investments to grow and less about the amount. You cannot expect your money to double in a year. You have to give your investment time to grow.
Assume you start investing at the age of 25 and invest Rs 10,000 every month for the next 30 years (age 55). Your friend was late and started investing at 30 years – the same Rs 10,000. Assuming you both get 12% returns on your investment. At 55 years,
- Your invested amount – Rs 36 lakh
- Your corpus – Rs 3.53 crore
- Friend’s invested amount – Rs 30 lakh
- Friend’s corpus – Rs 1.90 crore
The numbers clearly show that starting late has a significant impact on the final corpus. If your friend wants to have the same corpus, he will have to invest Rs 20,000 every year. If you need to create wealth, you need to start now.
Saving can make your wealthy
Saving money is not enough. Saving is equivalent to buying the seeds of a plant. Will buying seeds and keeping them in your garden help you? It will not. To grow plants and enjoy their flowers and fruits, you must sow the seeds. Look after them – ensure they have enough light, water, and air.
You need to invest your saved amount and continuously monitor your investments. Learn to balance the risk and return (light and water) to ensure your investments give the best fruits (returns).
High returns are necessary to create wealth
Many investors believe that they need to invest in a risky investment that can fetch them high returns. High returns are necessary to create wealth. Not true. Investors must understand if you take high risk and lose your capital, you are going back, not moving forward.
Risk is also related to age. Someone in their 20s can take more risks than someone in their 30s or 40s. Contrary to popular belief, the high risk does not necessarily mean high returns and wealth creation. If it was true, every investor would have invested in small-cap companies and created wealth. The key is to create a balanced portfolio and regularly invest through a Systematic Investment Plan (SIP) and stay invested.
Invest and forget your investments
In the above point, we mentioned ‘stay invested’. You will hear such lines in many places. Advisors talk about investing and forgetting your investments to create wealth. We also stated in the first point that time is essential to create wealth. Investors combine such information and believe they need to invest and forget their investment. However, this is not the right way to create wealth. You need to monitor your portfolio continuously. If an investment is not performing well, you should sell it (sometimes in losses) and invest the amount you believe will fetch better returns in the future.
Retirement planning is for old people
One of the biggest myths that need to be busted and busted soon is that retirement planning is for the old. When you are in your late 40s and 50s, you should start retirement planning. The truth is the opposite. You must start as early as possible. As we have seen in the first point, the sooner you start, the easier it gets. Start with a small amount and gradually increase your investment. It is the best way to start planning for retirement. Retirement planning is one of the essential life goals, and you must start working on it.
Bonus – You need to spend a lot of time in research and analyzing to invest in equity
Yes, you need to invest time if you want to invest your money, especially in the equity market. However, you can use technology and invest without putting time into the market. Download the Jarvis Invest app and get started with your equity investment. It will create a personalized portfolio for you – in line with your investment horizon and risk profile. It also comes with a risk management system – you do not have to worry about your existing investments.
Do let us know which of the above points you believed was true?