by Deepa Venkatraghvan
[box]When we talk of creation, can you imagine something as money in the picture? Well we could and we call it wealth creation. Have you ever thought of making investments as an act of creation? Here is an interesting take on the art and science of wealth creation. Deepa Venkatraghvan will tell you more. [/box] [box type = “bio”]Deepa Venkatraghvan is a Chartered Accountant. She is also the author of the CNBCTV18 Bestsellers “Everything you ever wanted to know about investing” (which was later updated and released as, “Everything you wanted to know about investing in difficult times”) and “What your financial agent will tell you and why you shouldn’t listen”.[/box]If you had bought 100 shares of Wipro at the rate of Rs 100 per share in 1980, they would be worth Rs 200 crore today.
If you had invested Rs 10,000 in Infosys shares in 1992, you would be richer by Rs 1.5 crore today.
If you had invested Rs 1,000 in Ranbaxy in 1980, you would have got Rs 1.9 crore today!
Some guy out there knew this. Today, he is laughing all the way to the bank. So what was the magic strategy that made this fellow so rich? Read on.
Nobody taught me how to be rich
Every day I get up and look through the Forbes list of the richest people in America. If I’m not there, I go to work.
~ Robert Orben, American Magician
So what does it take to become a ‘really rich’ person or to become ‘wealthy,’ as I would like to call it? Our school and college imparted to us all the skills needed to make money. Unfortunately, they forgot to teach us how to manage it. Little wonder then, that many of the world’s wealth creators are school or college drop-outs. They not only knew how to make money but also knew very well, how to manage it. Something that school wouldn’t have taught them anyway!
Wealth Creation (or Personal Finance, or Financial Planning; by whatever name it is called) deserves the status of a separate subject or course in our education system. But since it is not so, most of the knowledge of wealth creation is passed on by experiment (or trial and error) and other people’s experience (or inexperience), neither of which one can trust one’s money with, especially in this rapidly changing world.
However, in the past few years, there has been a crusade of financial awareness and education from various quarters, especially by the financial regulators and the media. And that crusade gathered much steam in the aftermath of the global credit crisis of 2008. That crisis, though a ripple in India as compared to the storm in the West, taught us all some useful lessons or rather revised some forgotten lessons. It reminded us among other things that pride, envy, gluttony, lust, anger, greed and sloth were indeed the deadly sinful by-products of wealth creation.
Wealth creation: Art or science?
Wealth is the product of man’s capacity to think.
~ Ayn Rand, Author.
Dictionary.com defines science as “a branch of knowledge or study dealing with a body of facts or truths systematically arranged and showing the operation of general laws.”
It defines art as “the principles or methods governing any particular skill or ability or branch of learning.”
Given that, the answer to the question ‘Is wealth creation an art or science?’, obviously, is not clear-cut.
Wealth creation, because of its very nature, deals with numbers and mathematics, which are obviously scientific. Yet, the rules and principles of wealth creation are not necessarily facts or truths. For instance, if you invest Rs 5000 every month for 20 years in an equity mutual fund, you are most likely to create a corpus of around Rs 70 lakh. But this is not a fact or truth. This is based on an assumption that your investment will grow at 15%, which in turn is based on empirical studies.
Nevertheless, I would tend to lean on the side of wealth creation being an art. The art of taking a small sum of money and turning into large amounts of wealth; of cherry-picking the best investments from the vast number of financial instruments around; of having the patience to wait and watch the wealth grow. Analogically, to me, wealth creation is like gardening. It’s a long term process; the richness of the fruits depends on the quality of seeds and the nature of care. No wonder money plants are considered lucky!
How to create wealth – mastering the art
Now, how do you go about creating your wealth?
Remember to dream big, think long-term, underacheive on a daily basis, and take baby steps. That is the key to long-term success.
~ Robert Kiyosaki, Author of ‘Rich Dad, Poor Dad’
Kiyosaki pretty much sums it up here, but allow me to elaborate:
i. Dream big
Don’t allow money (or the lack of it) to come in the way of your dreams. Modern day financial advisors encourage you to dream big and then make a plan to fulfill it. And by following the other principles that Kiyosaki mentions, it isn’t too tough.
ii. Think long-term
Wealth is always created in the long term, that is, at least 7-10 years and above. Just like gardening. Equities are the best wealth-creating investment tools and they give best results over the long term.
What then, goes without saying, is that you must start investing early and give your investments time to grow!
iii. Underachieve on a daily basis
I would interpret this as living modestly on a daily basis and spending wisely on everyday habits. The key is to spend ‘wisely’ and not ‘miserly.’
iv. Take baby steps
Often, the common excuse for not investing is that you don’t have enough left at the end of the month to invest. Investing needs no more than Rs 500 a month; setting that aside month-on-month is a great way to build wealth. A 20-year old investing Rs 500 a month, every month, in an equity mutual fund can expect to retire with a corpus of at least Rs 1 crore. The key here is ‘every month.’
If those are some of the things you need to know to master the art of creating wealth, here are some traits you need to be a good investor.
Nerves of steel
Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
~ Warren Buffet, Investor
If Kiyosaki defines the method, investors like Warren Buffet, Benjamin Franklin, Peter Lynch, etc., often talk about the ‘art of being an investor.’ In most of their books or speeches, you will hear them talk about several characteristics an investor must have and their importance.
Of course, they talk about all the characteristics that you must have if you are going to go about doing the selection of your investments and stocks yourself. Assuming that you will have a financial advisor who will tell you what best to do, you still need some of these traits to follow your advisor’s advice. For instance, the stock markets may crash and all your friends around you maybe selling their investments. Your advisor may tell you to hold on; it does indeed take nerves of steel to follow that kind of right advice.
Here are a few traits that might go a long way in helping you create wealth:
- Patience
- Moderation
- Self satisfaction
- Discipline
- Passion
- Common sense
Be Informed and Educated
An investment in knowledge pays the best interest.
~Benjamin Franklin
I started out by highlighting the importance of personal financial education in school and college. Since that development may be a while away, the crusaders of financial awareness can only urge the layman to get educated and literate in matters of money. There are enough people out there who make a fortune by selling ‘money’ (like banks, mutual fund distributors, insurance agents etc.) And you happen to be the buyer.
So take care of your wealth and your wealth will take care of you.
Pic : incurable_hippie – http://www.flickr.com/photos/hippie/
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