1. Disciplined Approach to Investments – SIP ( Systematic Investment Plan )
A wise philosopher once said, “A journey of a thousand miles begins with a single step”. For today’s young and smart generation, he might very well have added that “the journey to immense wealth begins with a single SIP”. It does not matter that the money you have to invest is less. What matters is that you start. An SIP offers one of the best and most systematic approach to begin your investments. SIPs offer a simple and disciplined way to accumulate wealth over the long term. Mutual Fund SIPs work like bank recurring deposits, except that, they are subject to market risks and are able to generate superior risk adjusted returns compared to bank recurring deposits. SIPs in good funds have generated excellent returns and created wealth for the investors over a long investment horizon. There is a misconception that SIP works only for equity funds because it takes advantage of volatility through Rupee Cost Averaging. Remember the essence of SIP is the power of compounding; rupee cost averaging is an auxiliary benefit. SIP works as well for more conservative investment options
2. Waiting for the perfect time to start investing:
I have recently met an investor to whom I had explained about Mutual Fund investing a year back, in Wealth Secrets Program . I was taken aback knowing that he is yet to start investing. He still couldn’t commence investing because he has been looking for the perfect time to invest. I must tell you that when it comes to investing, you should never think of timing the market. Timing the market is important only when you look to trade, and not invest.
The market goes through several ups and down in order to reach to point B from point A over a significant period of time. The longer you stay in the market, better your investment return. As they say Time in the market is more important than timing the market.
3. Power of Compounding
In elementary school arithmetic we were taught the difference between addition and multiplication – the power of multiplication is much more than that of addition. Power of compounding in wealth creation is multiplicative not additive – your wealth will multiply if it remains invested for long tenors. In the chart above, your wealth multiplied 10 to 50 times over investment tenors of 20 to 35 years. Longer your investment tenor, higher is the wealth creation.
The not so secret recipe in the wealth creation is the “power of compounding”. The concept of compounding is simple. Power of compounding is nothing but interest earned on interest or profits earned on profits. The power of compounding over a long horizon, if invested in the right asset, is enormous.
Do not opt out for dividend option, if you are not depended on this investment to meet out your regular house hold expenses. I see many investors are opting for dividends without any necessity are opting out for dividend options and losing out on compounding. Remember compounding is 8th wonder of the world.
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Sathish Kumar
Equity Fund Manager | Wealth Consultant | Author
WhatsApp / Call – +9198410586809
http://sathishspeaks.com/
