A rupee saved is a rupee earned. However, saving money never made anyone rich. It is investing money which makes people wealthy. There are two ways to create wealth. One is to earn more and other is to invest and put your money to work to earn for you.
To earn more one needs some specialized skills or work in a profession which pays well. It may not be practically possible for everyone to do this. On the other hand, even if you don't have a specific skill, you do have an option to earn more by investing and putting your money to work.
However, not all investments can help you to create wealth. Most investors often make some common mistakes.
Some of the most common investment mistakes of investors
- Investing too much in gold
- Investing too much in one asset
- Focusing only on saving rather than investing for wealth creation
- Not monitoring investment portfolio at regular intervals
- Not saving enough for retirement
- Investing in the stock market without proper knowledge
- Investing with a short-term mindset
- Over diversification by investing in too many asset classes or too many stocks
Click here to read more about these investing mistakes.
It is said that mistakes are the stepping stones to success. If you are unable to create wealth with your current investing strategy, it is time to self-introspect.
The ideal way to invest in wealth creation
The best way to invest for creating wealth is by dividing your investments among debt and equity. If you are in your 30s, you can invest a higher portion of your investments in equity and rest in debt instruments. However, if you are in your 50s, you need to allocate more to debt and less to stock market investments.
This is is very important because when you are young, you have more time in your hands and stock market investments can give high returns over the long term. Whereas when you are nearing your retirement, you need to play safe by reducing your exposure to stock market investments.
An important thing to remember here is that every asset class for investment has its pros and cons. For instance, bank fixed deposits and PPF are subject to falling interest rates but come with low risk. Gold is prone to theft and requires additional charges for safekeeping in bank lockers. Stock market investments are the best way to generate the highest returns among all asset classes but are highly volatile in the short term. Besides this, one needs a lot of research to select the right stocks for investment as all the stocks listed on the stock market in India will not create wealth for investors.
To summarize an investor should choose his investments wisely depending on his financial goals, risk profile and time horizon for investment. If in doubt, one should always seek the help of a professional financial advisory service. Know more.