Whether it is a game of badminton or cricket, you need to attack to win. So, forget what the statistics tell you: we were winning (even in Test cricket) because we had Sehwag at the top, thrashing the hell out of the bowlers. Yes, you need to be defensive too, but it is attacking that wins you points, or matches.
Wealth creation has three legs. You need to:
Earn well.
Save aggressively (spend sensibly). Convert that saved amount into investments wisely. How people deal with their money depends on what money impressions their parents have left on them. So, people who come from not very well off backgrounds save well, but are afraid to invest. They try getting rich, but are unable to do so because of their approach. Many of them have got rich because some ‘esop’ was thrust upon them, and some of them were too lazy to sell it off.
Earning well is a good requisite, but saving and investing are not-so-intuitive and definitely not easy to start off. Deepika Padukone earned Rs 112 crore last year. Is she done and dusted for life? Does she need to earn more?
Well, from many a common man’s point of view, Deepika has earned a huge amount and it should be enough for her retirement. However, a film actor has a lot of expenses, which a retired school teacher may not incur! So, she has to spend on all of that. Let her say her personal expenses are Rs 2 crore a year. She will have to spend on car, driver, secretary, agent, PR, dietician, massage, fitness trainer, et cetera. I call all that as business expenditure.
Assume that at the age of 44, she retires and has no income. Assume that her income at that stage is zero. How much will she need for her retirement?
Well at Rs 5 crore a year, she will need about Rs 250 crore for the next 50 years, invested in good assets. That calls for sensible investing NOW.
Earning alone is not enough. That has to be saved, and then invested. Saving is not so difficult, but it is a good habit to form at a young age. Assuming Deepika has middle class values and is saving enough, she has to invest that amount. That is tricky. It makes a lot of sense to get a good investment advisor. Till she gets a good advisor, she can afford to be in an index fund, and a low duration bond fund. Just invest in two mutual fund schemes. No sweat, no asset allocation, no nothing. No term insurance, but a reasonably big medical insurance, just in case.
For the common man who is not into that kind of money, the need to get a good investment adviser is even more urgent. You will need to do a sip in a couple of good funds, including a good ELSS fund, a short duration bond fund, and an index fund. Once you start learning, (with the help of your advisor) you can experiment with small-cap, mid-cap, large-cap, etc.
You could even start by investing (not trading) in one or two good companies every year, but by the time you are 45, you would have enough experience and knowledge to invest in a mutual fund scheme of your choice. Remember, the days of ‘saving’ for retirement are over. Now is the time to ‘invest’ for your goals, retirement being an important one.
So, if you know how to earn well, save well and invest wisely, you will reach the end of your wealth creation journey in good shape!
PV Subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest Rs 40 a day’