General

Start early to create more wealth

A few weeks ago, there was an enquiry on investment advice. A concerned investor was not yet a salaried man but was in the process of getting into one a couple of months later. However, that did not stop him from thinking of investments . He wanted to be on the right track from day one.

For wealth consultants, such a scenario would be a pleasing one and imagine the business potential for all those consultants if every family were to think on these lines - staring early. Unfortunately, the reality is different as very few think of investing though they end up saving as much as 30 percent of their incomes.

The big difference between the two is that the investing process lets the investor grow his corpus whereas saving only helps in accumulation. And another big difference between the two is that the investment process helps in wealth creation but can carry risk.

For those who get into the grove early in life, the advantages are plenty. It allows them to build a huge corpus even with a small amount. Also, investors can afford to take risks as compared to older investors as they have a much longer tenure on their hand. More importantly, the habit of getting into investing early in life allows them to take advantage of different options and some 78 instruments which may not be the case for those who start late.

For instance, a 60-year-old professional who has never dabbled in equity cannot afford to look at equity even if the indices are rising and look good for some more points. Such a professional /investor will have very limited earning options in the remaining years of his life and hence will not be in a position to cover the losses which are an integral part of equity investing.

For those looking at starting early, here are a few tips

Think long-term
It is not good enough to just start investing early but you need to have a long-term approach for the amount too. For instance, discontinuing saving and investments after a short period is as good as not investing as it will fail to deliver returns over the long term. For instance, many young professionals get into an unit-linked insurance policy to reduce tax liability but end up discontinuing the premium payment after one or two years.Not only will this result in loss of amount paid but will also not prove beneficial in the long term.

Be aggressive with funds
One of the big advantages of starting the investment process early in life is that it allows the investor to take risks because of the long investment period. So, young investors can go in for aggressive options such as equity, and futures and options depending on their risk profile.In the recent times even commodity trading has found favour with many as the returns have been good and many investors have had the risk appetite to go in for this option.

Analyse new products
Young investors have the luxury of trying out different assets and many of them might not have existed during earlier days. Hence, it is important not to be influenced by the saving and investment patterns of their parents and instead, efforts should be made to try different options for creating wealth.

Source : Srikala Bhashyam, ET Bureau