Wealth creation is not about getting the highest returns. High returns come with high risks when the investment fails the returns decline. Wealth creation is about getting consistent returns.
Creating wealth is not about getting the highest returns. High returns come with high risks, when the investment fails, your confidence in making the right investment choices takes a plunge. Wealth creation is about getting consistent returns. Earning consistent returns is not about doing something drastic or contrarian in your portfolio. It is about maintaining the right investment behaviour and staying true to your asset allocation.
We often think that procuring wealth has something to do with overnight gains. On the contrary, it is the outcome of patience and careful planning.
Here are the 7 myths related to wealth which may change the way you approach money:
1)Wealth Creation is a day job
Wealth does not come with a handsome package or a few capital gains. The truth is like while Rome was not built in a day, wealth creation is also an outcome of investing in instantly consuming. As far as investments are considered, boring is best. By boring, we don’t mean complacency in managing money. we mean the belief that if they stayed true to the plan and had the patience to stick out the hiccups, the future outcome could have been positive. Not written-in-stone guaranteed, but predictable to a high degree.
2)Emotions bring the best of you
Proper investment behaviour helps you stay aligned with your goals, so you don’t waver in the face of market upheavals and consequently the emotional response to that external stimuli. Leaving your emotions at the door and staying your course are virtues that will eventually make you wealthy. Humdrum, unexciting, monotonous is good. Don’t let short-term uncertainties affect your long-term plans.
3)Invest in the highest yielding funds and remain relaxed
Another myth about investing is that we assume that the best yielding funds are the best to invest in and remain invested in forever. In fact, wealth building requires asset allocation. The allocation of an asset according to goals, volatility, risk and age. Asset allocation is the crux of long-term planning. Asset allocation assumes that volatility is the nature of the beast and give you with the wherewithal to roll with the punches. Let’s say you wanted to buy a house in 2009 and started to plan for it in 2005. from 2005 to the end of 2007, your conviction in the market would have grown. And then, wham, you were hit by the 2018 market crash. Does it mean that you abandon your plan of buying the house? No.
If you had the right asset allocation, you would have had adequate cash flows to manage short-term needs. You could have continued investing right through the crash, possible moved assets from debt to equity and invested at cheaper levels. You could have bought a more expensive house or taken a smaller loan when the markets recovered a few years later.
4)Conservatism is the sign of pessimism
The problem with most investing decisions is that you are overly optimistic about the outcomes. Being conservative is seen as a sign of pessimism. But, it is not true. Factoring in low probability, high impact events can help you stay your course for several years. The winner of a marathon is not the fastest runner, it is the steady runner.
5) Wealth is the same as being financially fit
Wealth is an abundance of valuable resources or material possessions. Financial fitness is to have the money you need when you need it. A piece of diamond won’t be of much use in a situation like a medical emergency. A person may have a lot of valuable land in a conflict zone but it will be of limited value when one has to flee. For your financial fitness, it is necessary to be wealthy. However, being wealthy doesn’t mean that you are financially fit. The journey has a different spectrum.
6) Money in assets is equal to money in hand
Having an IPO listed and having a market capitalisation in billions can make the company and employees wealthy but, not necessarily financially fit. Wealth has to be liquid to bring sustainability. A disciplined approach will convert wealth into financial fitness. Having the un-numbered amount of money in real estate, cash, in savings can make you wealthy. A financially fit individual is someone who has an agile asset liability management view of money matters; for whom ensuring liquidity during emergencies is seldom an area of concern.
7) Readiness is about having enough cash/credit to expend whenever and wherever
One aspect of wealth is also about being in a state of readiness. Readiness is not about having enough cash or credit to expand on a whim. Readiness is the ability to manage unexpected events and life-changing circumstances. This readiness can be achieved through sustained investment actions, steady behaviour with money and preparation. Another important aspect is maintaining consistency. Sticking to what is sustainable and scalable.