Wealth creation is the process of investing in different asset classes to achieve different goals in life. There are two basic principles for achieving prudent wealth creation:

• Start the investment journey as soon as possible
• asset allocation

Start the investment journey as early as possible:

It is very important to start the investment journey as early as possible to achieve an effective wealth creation process. Starting investments early in life will help you achieve your goals comfortably. It also helps in generating higher growth in the long term. The power of compounding is a concept that will help in creating a significant corpus in the future. The concept of compounding means return on return. Therefore, the longer the investment is made, the higher will be the return in money.

For example, a person starts investing Rs 10 lakh at the age of 24 for a period of 36 years till the age of 60, his Rs 10 lakh will be approx. 5,91 crore (ROI assumed at 12%)

Similarly, a person who invests Rs 10 lakh at the age of 40 for a tenure of 20 years till the age of 60, his Rs 10 lakh will be approx. 0.96 crore (ROI assumed at 12%)

It is clear from the above that the sooner you start, the higher will be the benefits and the ease with which you will be able to achieve life goals.

Wealth creation process always starts with setting financial goals which are retirement planning, child education, child marriage etc. These goals are to be classified on the basis of time duration as short term, medium term and long term goals.

asset allocation:

Asset allocation is an investment plan that attempts to reduce risk by balancing a portfolio through diversification. Asset allocation is an investment strategy that aims to balance risk and reward by dividing an investor’s assets according to an individual’s goals, risk tolerance and investment horizon. The three main asset classes — equities, fixed income and cash and equivalents — have different levels of risk and return, so each will behave differently over time.

It refers to the process of carefully weighing the positives and negatives of certain investments and adjusting the investment strategy in order to obtain the highest return on one’s investment.

The general rule for investing in equities is the age of 100 minus one. For example, a 25-year-old should invest 75% in equities and 25% in debt to accumulate long-term wealth and goals, which should be periodically reviewed and rebalanced accordingly.

Views are personal: The author Ankit Dailywala is the founder of Pinnacle Funds Mart (AMFI Registered Mutual Fund Distributor).

Disclaimer: The views expressed are those of the author and are personal. TAML may or may not subscribe to it. The views expressed in this article/video are in no way intended to predict or time the markets. The views expressed are for informational purposes only and do not imply any investment, legal or taxation advice. Any action taken by you based on the information contained herein is your sole responsibility and Tata Asset Management will not be liable in any way for the consequences of such action by you.

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