Getting wealthy is Easy
I mean it. Seriously. Especially if you are young. Say about 23 years of age. What is the secret to getting rich?
Get the following first – 1 or 2 bank accounts, one credit card, term insurance, …and ONE INDEX FUND. OK make it 2 index funds – Sensex plan, and a Nifty Next plan. Divide your money (that you can invest) into 2 parts and put it into these funds.
How much should you invest? Well as much as you can.
When should you invest? Whenever you have money.
For how long should you invest? Ideally forever. Your children and grand children should say OMG grampa started this 94 years ago….” or something to that effect.
What strategy is this? Well it is just understanding that “the more money that you put and the longer that you leave it untouched…the more wealth you will create”.
I know, I know…your head is bursting with “If it is so simple…why are more people not doing it already”?
Well, many people I know are doing it. They have been doing it for say 10 years or more. Maybe 40 years. Many of them (most) have created an amazing amount of wealth. Not enough people appreciate and thank God that God allowed them compounding. What do I mean? well God allowed you to let your money grow. He did not give you any emergency. He did not put somebody in coma in your house. He…..I am sure you get the drift.
So assuming you started a sip for your kid when the kid was 5 years old. At your kid’s age of 24…you handed over the scheme to your kid..and he/she continues it for another 40 years. As a sip. Yes, a rising sip.
Frankly, for such long sip it does not matter whether you get 8% return or 18% return. Both are possible for long periods of time. However can a portfolio grow at 18% for 40 years? Logic says no. However it has happened in the past. The returns from Sensex – including the dividends should be in that region from 1979 till date. However, it does not matter…just let your kid continue the SIP. At some stage of his life…the figure will reach Rs. 1000 crores. Not bad at all.
It will help him/her tell their boss: “My dad (or Granddad) taught me the power of starting early..and he started a sip for me when I was 3 years old. He put Rs. 25000 per month into the account for 20 years…and handed me the baton. I kept doing a 30k per month SIP in the same Index funds (large cap and mid cap). One thing that my dad taught me was “this is your retirement money …do not touch it till you are 55..and remember to start one for your kid”. Today at the age of 55 when I see Rs. xxx crores in that fund, I know I can retire…I know I can tell my boss…I will not come from tomorrow”.
It is a very powerful tool. Whenever you have money, just keep putting into that…over and above the sip. Today you can do a step up sip – which will ensure that the increase in salary/ business income is taken care of.
Go….like Nike says “Just do it”. Do not procrastinate. Delaying investments is fun – as long as you are not impacted by the cost of delay….
Mohit
sir, I completely agree with this thought about generational-wealth creation. When my son was born in 2013; I started 1Lac per month SIP (50-50 in equity and debt) for an annualised gain of 10% p.a. The SIP calculator tells me that when I die in 2058 at the age of 75, it will be 100cr. Well even if I dont die then; I will pass him the baton and ask him to take out 25 cr (around 5cr on PV) and continue the SIP trend with same amount.
If he actually follows my DICTATION, he will pass on 1300cr to his child (my grandchild) when he is 75 himself. The trail can continue with 25% withdrawal for the grandchild and balance in rollover SIP. Lets hope life is linear…
(PS: paradox observation here – multi-generational wealth gets wrecked at 3rd or maximum 4th generation. We dont need to look beyond – just look at Lord Krishna’s example himself! If god-children couldn’t keep it – then who are we…!)
R KANTHAVEL
This is Subra’s Mantra every body should tell their kid as a story and create positive vibe.
I am starting late but it will go LONG!!!
Pradeep
I dont understand whats the kick in seeing 100 crores in MFs at the age of 80 and you are dying fully knowing you only learnt to invest and never thought about spending it. I think we must learn a bit from westerners how to live life for yourself as well
Vinod
Investing slowly is not for kicks. You are sitting under the shade of a tree at present because someone planted a tree some forty years ago.
pradeep
Nope, I did not get a tree to sit under. My parents only had the wherewithal to make ends meet. In any case my aim would be not to leave 100 crores for my kids because then they will not have a challenge in their life simply sitting ‘under the shade’. They should chart their own future with some minimal yet substantial fortune left by us.
Mohit
@pradeep — I agree with the thought of “not spoiling kids”. But at the same time, wouldn’t it be prudent to provide a “fallback cushion” for them? Inspire them to go out in their careers, take huge risks/bets and make mistakes – but if you fall you have a ‘huge cushion’ to back you up? What if they want to pursue Arts but the pressure to earn boggles them down? (thats exactly been my story)…
PS: I do not sacrifice my present just to die rich. I “try” to follow a balance. But yes, this SIP target is non-negotiable and some present “wants” and not “needs” do get compromised in the process.
SS
I agree with @Mohit on providing fallback cushion and providing for kids future, so that they can chase their dream without having fear/pressure to earn by working for someone else’s dream.. Concept resonates with Subra sir’s cricket analogy where Shewag scored good runs by 18th over when you walked in for batting. @Pradeep, not for kids, but at least for your self when you get old, heard of the ant and grasshopper story ?
I differ with the calculation that @Mohit put, though.. We are assuming life is going to be linear euclidean and contribute this amounts forever and build a corpus. How the future would unfold is beyond the rules of pure maths and excel sheets.. The calculation assumes no retirement at 60, ideal job guaranteed for ever, no withdrawal from corpus and the graph travels a very linear path, Peaceful death at 75 with no diseases, 0 funding for college, 0 for marriage etc.. This is a very ideal scenario. suppose for eg. we consider a paltry sum of 100 Rs + 100 Rs every month, then the linear behavior is possible because the sum is small and we can guarantee un-interrupted growth for ever to an extent.. But if you have to pay 1L+1L every month (eg. only) then it depends on which strata/class of people you belong ‘at-the-moment’ and affordability (and certainly above avg indian reading this). I think here some Pattu’s calculations will help in this context.. Yes, but the vision is correct.
pradeep
@Mohit, Agree with that fallback cushion which is why I said we need to leave them with small yet substantial wealth to allow them to do what they want with it or to fallback on if their own dream didnt go to plan. Mind you before all this, we would do the best for their education first.
Beyond that I think one must not forget to live his own life and you can live only when you can. And save whats needed for us for the real old age.
Deepak
“God allowed you to let your money grow”. Indeed, so grateful for the health of family, parents, grandparents, relatives…. All this only enabled to be first generation professional and just have that continuity even outside of money in career/jobs really lucky feeling when I look around relatives and hear stories from parents. Off course money has been a good byproduct.
sharad
Bit exaggeration here, neither too much money should be invested nor for such a long period, what is the point of making money if one cannot spend it?
In my view, there should be optimum way to earn/save & spend
Nak
Sir what do u think is better. Index fund or ETF.