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Sunday, April 26, 2009

Wealth Management - Creating Wealth

Wealth creation is a long-term exercise, and choosing products for wealth creation is an integral component of the whole exercise. Interestingly, the intermittent boom runs in different asset products make many believe that timing is more crucial than the investment process. However, history and the recent events in the global markets have once again reiterated the fact that wealth creation is a mere scientific process which requires endurance and patience.

Wealth Creation Is An Long Term Exercise
For instance, the recent short bull run in the domestic stock markets would have benefitted those who picked their stocks after the October crash. Some of their stocks have managed to offer three-digit returns. The same can't be said of those who chased shortterm profits on the belief that the markets are in a trading zone more than in an investment zone.

Choose right kind of assets
Coming back to the topic of wealth management & creation, it is worth focusing on the fact that besides the right process, an investor also needs the right kind of assets to build his wealth. Interestingly, the choice of assets need not be static as newer products emerge at regular intervals and the choice itself varies in line with the changing needs of the investor.

For instance, a decade ago, a fixed deposit was the primary option for an investor looking at riskfree returns. Today, the list has expanded with new entrants such as arbitrage funds, floaters and liquid funds. Hence, besides focusing on the process of investment , an investor also needs to track the emerging options in the marketplace.

Read: How To Make Money In Stock Markets?

Ideal Condition For Building Wealth
Many young investors often ask the question what is the ideal situation for building wealth? Should it be taken up right at the beginning with smaller amounts or should the whole exercise begin when the investor is free of his commitments and has the ability to enjoy better cash flows. The answer lies in the comfort of the investor, though earlier the better is the general consensus. While no doubt an investor should begin the process of investing at an early stage in life, the greater focus has to be on its review.

For instance, an investor who signs up for a systematic investment plan of Rs 2,000 per month cannot afford to continue with the same amount, irrespective of the changes in his earnings pattern . Such investors, in fact, would be required to review their savings potential every second year to build the corpus. That brings us to the other important component of wealth creation - creation of goals.

Motivation Is A Very Much Necessity
It is always much easier to chase a known target as it inspires the individual to go after it. The same logic can be extended to wealth creation as it motivates the investor to stay committed.

Those who find the task of goal-setting tedious or challenging can take comfort under short and medium terms as their achievement spurs the investor to commit fresh investments.

For instance, it is hard to motivate a 22-year-old to set aside a sum for retirement planning for a period of 35 years, whereas he can be easily cajoled to save for a new car for a period of 2-3 years.

Allocating Funds With Caution
Once the goals are in place, the allocation of funds into different instruments is a lesser challenge. An investor, building a portfolio over 2-3 decades, is unlikely to be perturbed by short-term events. On the other hand, he has to be cautious with his fund allocation for expenses which could come up in the next 12-18 months.

As pointed out earlier, portfolio creation is a culmination of classification of goals and creation of the right set of products for the fulfilment of those goals.
Source: EconomicTimes

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