Want to get wealthy? For this, you need to earn well. For most of us, it means studying well, getting a good job and sticking to jobs. Of course, if you are talented and the masses are willing to see you play (Sachin, Virat, Smriti Mandhana, Harman Kaur) or willing to see you act (Sharukh, Deepika) you will earn a lot of money, but that requires a lot of talent.
Earn Well. Spend Smartly. Invest Wisely. All 3 actions are important at the start and then you should keep investing in a diverse set of income-generating assets. This income could be received or accumulated. Accumulation is better simply because Capital Gains Tax is lesser than the Regular Income tax. While this advice sounds easy enough, the hard part comes when deciding what kind of income-producing assets to own.
Most of us rarely venture past fixed deposits, public provident funds, shares and bonds when creating an investment portfolio. These asset classes are quite popular and are great ways for building wealth. However, these are just the tip of the investment iceberg. If you are really serious about growing your wealth, what are the total options palates that the investing world has to offer?
Here are a few assets that you may have not considered – all the options in fact!
Shares/Equities
If I were allowed to pick only one asset to create wealth, it would surely be Shares. This asset class has created wealth all over the world where democracy has thrived. The US, UK, France, India, etc. Over the past 200 years (US) and over the past 150 years in India, shares have created a lot of wealth.
Will it continue to create wealth in the future? I will bet my shirt on that. However, this is your long-term asset class. While investing in equity, think in terms of decades and generations, not weeks and months.
So, how do you buy shares? Well, you can purchase individual shares – not recommended for a beginner, or you can buy a fund that gets you broader share market exposure. For example, the Nifty in India will get you an exposure to the top 50 shares listed on the National Stock Exchange, and buying a Sensex fund will get you exposure to the top 30 companies listed on the Bombay Stock Exchange.
Similarly, the S&P 500 index fund will get you US equity exposure while a “Total World Stock Index Fund” will get you worldwide equity exposure. It is one of the best asset classes for creating wealth, however, like all good things, there are caveats too. When you invest in equities you should be willing to see a 50% decline a couple of times in your investing life, 30% correction every 5-6 years, a 10% decline once in 2-3 years, and a dramatic daily fluctuation.
If this is not for you, put a small amount of your money, so that you start learning about equities, and invest on a regular basis. Other asset classes are debt mutual funds, bank fixed deposits, metals, real estate, and small businesses (start-ups, running businesses of friends, etc.)
PV Subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire
Rich - Invest C 40 a day’