Each one of us wanted to become wealthy, but very few can achieve wealth creation. Did you ever checked why only handful of people are able to achieve great wealth? What is that they are doing differently that we are missing out? You will get the answer if you do introspection. The simple answer is that most of us are playing safe when it comes to wealth creation.
Wealth Creation – Stop Playing Safe
What is playing safe? If you are not aware about this terminology, let me help you with the simple example of Cricket. (Since cricket is the most favorite sport in India). In the game of cricket, when you have to chase a score of 400 runs (in ODI), in 50 overs and you are already 6 wickets down. The required run rate is around 8 runs / over. The RR is still manageable, provided if you don’t lose wickets quickly. In such situation, the batsman will take singles and doubles, avoiding boundaries and sixes. This is to minimize the risk of getting out and scoring slowing to reach the target.
Same way in our life, we have our financial goal that we wanted to achieve and most of the time, to achieve this goal we tend to play safe as we are afraid of losing our money. Thus we will only be able to generate moderate returns (sometimes even negative) which will make it hard to achieve our goals.
On the other hand, if you check the profile of wealthy people and how they have made their fortune by creating a wealth that will last for generations, you will realize that they have taken a calculated risk in their life for wealth creation.
We spend around 25 years for our academic studies and acquire a degree that will help us to get a decent job with decent salary. We started liking the corporate culture and enjoying the climbing corporate ladder. We started saving money from our salary and invest in fixed deposit or LIC policies. We think that the return we are earning is safe and we get tax benefits as well.
Investing in these conservative investment options will not yield you the wealth you are looking for. For wealth creation, you need to take some risk and invest aggressively in the investment option that will fetch you return at least higher than the inflation rate.
Now you must be thinking what is the best investment option for you that will earn you higher return? You should not be surprised to find that the equity market and real estate are the two best options for wealth creation.
The return on Nifty 50 index is 15% for last 20 years and 14.1% for last 10 years. Here is the year wise/month wise data for Nifty 50.
Now tell me, which asset class is generating this much of return for you? Let me know in the comment box if you find any investment option which can generate the long term return higher than 15% / year.
I am not saying that you get into the equity market market without adequate knowledge and fully / deeply invested into it. But a portion of your saving must go into equity market either directly or by investing through mutual funds.
Now your next question would be what portion of your saving should go into equity market? The simple formula for this is the as below
Your current age – 100 = portion of your saving should go into equity market.
For example, if your age is 35 years then 65% of your saving should go into equity market. You can further diversify your equity investment into large cap, small cap, multi cap etc. This will help you to safeguard your money during the bear market phase.
There are investment options which can fetch you higher returns than the conventional options line fixed deposit and LIC policies. One must explore these options and invest into these options for wealth creation. Without these options, one cannot create significant wealth which can beat inflation.
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