Jeff Bezos, the founder of Amazon.com, once asked Warren Buffett, the legendary American investor, about people not “copying” his style of investing. Buffett responded by saying that nobody likes to get rich “slow”.
‘Getting rich quick’ is a dream. In our country, there is no shortage of people who would want to do that. There is nothing wrong with making money and realising your dreams. But just like a tree takes years to give you fruits after you plant a seed, your money takes time to provide you with benefits you wish to see. Your dreams, goals and aspirations create a drive for your path towards wealth.
As long as you do not break any law and do not evade taxes, there is no reason why you should not dream about being wealthy. One cannot predict when you would get there. Your future wealth is a factor of your future income. If you have a stream of income, you can always build enough wealth over 15-20 years.
You may now realise that there are no shortcuts in wealth creation. Napolean Hill, an American author of self-help books like ‘Think and Grow Rich’, said that if you cannot do great things, do small things in a great way. Regular investing is doing small things in a great way.
If you speak to a financial advisor, they will all tell you that it all begins with investing regularly.
Every month, if you can set aside money to invest, then you could set yourself on the right path. As the years go by, a slow and steady process of regular monthly investment gets the benefit of compounding. The power of compounding was called the eighth wonder of the world by Albert Einstein. The most crucial aspect of regular investing is discipline. If you break it, it is a setback and would create delays in your path towards prosperity.
Your investment returns have to be at least twice that of the average consumer price inflation rate. The investment game is about ensuring that the time does not eat into the value of your money.
Think and act equity
Equity assets are best suited if you are keeping a time horizon of 15-20 years. Time and again, it has been proved through analysis that stock market returns outperform all other asset classes over the long-term.
You can buy them through mutual funds. A few systematic investment plans from mutual fund houses with a good track record would set you up. A financial advisor can play a crucial role in helping you choose the right mutual funds. It is a good idea to stick to three or four different type of schemes. That would give you adequate diversification.
If that does not suit you, you may just get started with a simple investment in an index fund (Sensex or Nifty). Benchmark indices have outperformed all other fixed-income investments like public provident fund, fixed or bank deposits, gold and other asset classes. It is the most straightforward approach to getting rich. Most of the people in the United States have used index investing to boost their overall household wealth. They allocated their pension fund savings to index funds. The affluence in American households happened gradually.
Buying shares directly requires you to know more about investing. That is perhaps the reason why Warren Buffett calls it “getting rich slow”. When you buy equity shares of a business, you are purchasing a slice of the company. You have to then think about ways the business makes money. It may be a good idea to pick up shares of market leaders in key sectors like consumer goods, financial services, IT services and automobile. They can be a subset of companies that form the S&P BSE Sensex or NSE Nifty. Like you can do systematic investment plans in mutual funds, you can do a systematic equity plan in shares. Buy a small number of shares of a leading business over 15-20 years. A key to this strategy is to ‘buy and hold’.There are no shortcuts. ‘Getting rich’ is a gradual process that requires effort. But it may just be worth your time.
SYSTEMATIC EQUITY PLAN
Like you can do systematic investment plans in mutual funds, you can do a systematic equity plan in shares. Buy a small number of shares of a leading business over 15-20 years. A key to this strategy is to
‘buy and hold’.