Having definite wealth goals can help you achieve a level of satisfaction with your money which is difficult to achieve from any other possessions. Wealth goals are also useful as they can help you achieve your other financial goals more efficiently. Many of the renowned businessmen who found financial success have been known to pursue a wealth goal before jumping into the business.
So, you can see that the wealth goal or a savings plan to accumulate a certain amount of wealth could set you for life. However, like many good things, wealth goals are not easy to achieve. But, with the right approach to savings and investment, even the most ordinary investors like us can achieve great feats.
Here are a few ways you can speed up your wealth-building goal:
1. Automate Monthly Savings to Investment Transactions
One thing which sets wealth goals apart from every other goal, whether financial or not, is how disengaged you must be to achieve it. The first step in this direction is to automate your investments as far as possible. All you will need to do is follow the only ground rule of, “Save first spend later.”
Now here are the benefits of this one simple step, which will add to your wealth goal:
Remember that whatever you do repeatedly for a long time becomes your habit. Many investors who struggle to achieve their financial goals repeatedly end up spending their income before saving it. Therefore, the best option is to automate your transfers from savings to investments at the beginning of the month.
2. Allocate to Equity
Equity allocation is a must if you are aiming to achieve your wealth goal early. Equity is the only investment which pacifies both inflation and market growth into your portfolio. Thus, you need to invest a portion of your total savings into the equity market. Now, how you do that is the question you need to think a little deeper.
You need to choose the best investment option for your equity investment depending on your life and financial situation. A few examples are as follows:
|Rajat is 27 years old, can easily save Rs. 50,000 a month (half his monthly income)||He should choose a couple of equity funds and start SIPs into them. Also, ensure tax-saving and minimum capital gain incident on maturity.|
|Vajirao is 40-year-old, has a family with 2 school-going children. He can invest Rs. 10 Lakhs but once a year. He’s an equity dealer and trader in BSE.||Vajirao can directly invest in the equity market and purchase valuable stocks since he has insight. However, until the opportunity knocks, he can keep the money invested in a liquid fund.
At the same time, he should also, keep a systematic transfer going to few equity funds so that a part of his money stays invested in the market and does not lose on growth.
|Dr Kanika is a surgeon and can invest Rs. 1 lakh a month. However, she’s worried that equity markets are volatile and can cause her to lose part of her savings. On the other hand, she also wants to benefit from the growth.||Dr Kanika needs to divide her portfolio into short and long-term investments. She will need to divide her long-term portfolio between debt and equity in any ratio she is comfortable with, then rebalance from time to time as per equity market performance.
Equity markets may take time to materialise, and in the meanwhile, Kanika can benefit from the volatility by using her allocation in debt to push her equity portfolio.
Thus, you can see equity allocation gives you ample opportunities to customize and grow your money as per your risk profile. And the most important aspect is that part of your money should always stay invested in equity.
3. Stick it in for Long-Term
Nothing builds wealth better than time and consistency. Just take the simple example of investing Rs. 1 lakh a year at 8% p.a. for five years. You get Rs. 5.87 lakhs by investing Rs. 5 lakhs. Now imagine continuing the investment for the next 30 years.
The return was the same, your investment had been the same, but you add a little more time to the equation and the magic happens. Now if you add just one more year to this 30 years’ investment, you will have an additional Rs. 10 lakhs.
This is the power of compounding, the only magic equation in finance.
4. Manage Your Portfolio Risk
You need to be careful with the overall risk your portfolio carries. Most investors end up losing their money in equity markets because they took more risk than they could afford. These investors end up liquidating their holdings due to unbearable losses.
Thus, managing your portfolio risk and keeping it within bearable limits is very important. Remember that while you are investing for a wealth goal you will still need money from time to time to meet other financial goals.
Thus, always take a calculated risk with equity investments. One of the best strategies which may work wonders is to allocate 50:50 to debt and equity holdings. Then you can readjust your portfolio after every few months depending on equity market performance.
If your equity portfolio weighs higher, liquidate a part of it and bring the weightage back to the original 50:50. You move money from debt to equity when equities perform badly.
This gives you two simple advantages – 1. You invest more into equity when markets are down, 2. You get out of the equity when markets are up.
5. Increase your Investment Every Year
Another one of the golden rules of chasing the wealth goal faster is to increase your investments as your income grows. Ideally, your savings ratio should increase as your income grows, i.e. you save a larger portion of your income with each growth.
But, even if that is not possible, you should at least try to keep the savings ratio the same. This will ensure that your investments keep up with your growing lifestyle, and so does your wealth goal.
One Investment Which Lets You Do All:
Finally, the question, is there an investment option which would let you do all of the above? The answer is yes. Online unit-linked insurance plans like Invest 4G from Canara HSBC OBC Life offer most of these features and more.
These wealth plans are highly tax efficient. You can enjoy a tax exemption up to Rs. 1.5 lakhs on your annual investments and maturity value can also remain tax-free.
More than that, Invest 4G ULIP plan gives you the option to automate your portfolio management strategy as well, which means, whether you get time to watch your portfolio or not, it’ll keep up with your risk profile.
Adding to that the plan only charges mortality and minimal fund management charges (FMC). While mortality charge keeps on dropping as your portfolio grows, the maximum limit for FMC is just 1.35% per year.
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