13 Steps to Bloody Good Wealth

by Ashwin Sanghi

So let’s always remember this: money is merely a concept, albeit the most powerful concept ever to grip human consciousness.

‘Happiness is not in the mere possession of money. It lies in the joy of achievement, in the thrill of creative effort.’

‘There are people who have money and then there are people who are rich.’

Having a dream is a must. It keeps you going and lets you forget the challenges of the daily grind.

Be patient, but also don’t hesitate to grab the bull by its horns when the right opportunity presents itself. Ride the wave and find your greatness.

All of this is to say that wealth is multi-dimensional. How you earn it, how you spend it, and what you make of it are unique. Just like your personality.

on average, an Indian billionaire has spent almost forty years getting there. And in order to spend that much time reaching a goal, you must have a plan.

be firm in your convictions and keep the end in mind, but don’t be blind and get stuck in traffic either.

‘In God we trust, everybody else brings data to the table.’

Planning is the difference between being reactive and proactive.

‘Try doing everything that you just said while the engine is running.’

‘inflation is taxation without legislation.’

you should be worried.

equity is one of the few asset classes that beat inflation over extended periods of time.

only certain investment classes allow you to beat inflation and earn some real returns.

One man borrowed money to buy a herd of cattle and paid back his full loan by selling exactly one cow from the herd.

‘Wealth consists not in having great possessions, but in having few wants.’

‘I’d like to live as a poor man with lots of money.’

‘In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.’

Use your money to make more money by earning interest or dividends, or on capital gains by selling assets that appreciate in value.

invest, and your money will sprint. Do not invest, and it will stay sluggish and slow.

They accumulate investments that generate enough to cover their daily expenses. When you have managed to do this, you’re out of the rat race and on the way to true financial freedom.

risk and return are two sides of the same coin.

Tragedies occur when people take risk without being aware that they are taking a risk.

the notion that all wealthy people are well informed is a fallacy.

you’ve worked hard to make your money and save it. You will perhaps need to work harder to manage it. Money cannot manage itself.

Standard deviation is simply a measure of how much an investment’s returns vary in comparison to its mean.

•Compounded Annual Growth Rate (CAGR):

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At what constant rate of growth would your Rs 100 become Rs 250 over three years? The answer is 35.72%. How?

There are no such guarantees. Just as high risk means the possibility of higher returns, it also means higher potential losses.

‘building wealth is a marathon, not a sprint.’

before you make an investment, you must determine the amount of time you have to keep your money invested.

number of years before you start using your returns.

If you have five lakhs to invest today but will need it in a year to buy a car, investing in high-risk stocks may not be the best idea. You may be forced to sell your stocks at a loss.

What exactly am I trying to tell you? Simple. The earlier you start investing, the greater the odds that you would end up making more money. And remember one thing.

when it comes to financial matters, the more informed you are, the better you will be able to evaluate the risks and returns. Is

Don’t put all your eggs in one basket.

your asset allocation is unique to you and don’t let anyone else tell you otherwise.

simply putting your money to work in the best place in a well-thought mix.

Asset allocation refers to the collection of investments you own.

diversification is spreading your money amongst different kinds of investments so that if one loses money, the others make up for the loss. And in aggregate, in the long term they are all appreciating and beating inflation.

your asset allocation plan should be able to ride out the storms of economic downturns (we’ve had two since 2000 already) and grow your money steadily by harnessing the power of compounding.

it’s better to gradually reduce your percentage of long-term investments as you come closer to the end of your investment time horizon.

great way to gauge your tolerance for risk and losses is to test your portfolio to see how it would have performed through a number of scenarios.

If you refer to the table, with a 100% equity portfolio there was a year in which you would have lost 50.63% of the value. On the other hand, while the 100% fixed income portfolio has been steady and has not seen a negative year, the CAGR is actually lower than the average inflation rate through the period!

Gains are higher in an equity-concentrated portfolio but the losses are smaller in a fixed-income portfolio.

if you have a longer time horizon, it makes sense to invest in assets like stocks and bonds that have a greater risk. With time, the volatility in the return is tempered down.

complex investment world does not require a complex response. In the world of investments, simplicity is the ultimate sophistication.

‘Be fearful when others are greedy, and be greedy when others are fearful.’

Over time, this gap in growth rates makes your investments deviate from your financial goals.