Wednesday, January 29, 2014

Are you a Crorepathi? Here are strategies to remain one

Anil Rego-CEO& Founder- Right Horizons-Posted on money control
Congratulations, you have just reached the elusive ‘Crore’ in wealth, the figure that nearly everyone aspires to have one day. The question now is how to protect this wealth, and how to ensure that the crore grows rather than use it for day to day expenses. It is very hard to save over a crore, but harder still to ensure that it remains!
One of the most important things to keep in mind is that one should not give in to unnecessary temptations, especially when one has money in the bank, there is a tendency to splurge and purchase luxury items, and while this is not necessarily a bad thing, one should control the urge to spend for the sake of it. Yes, buying that luxury car or taking that dream vacation is possible and can be done, but purchasing a fleet of cars or a boat is not necessary.
Ideally, one should still make a monthly budget (although the budget can be higher than it was before you became a crorepathi), and try to stick to this as this will ensure that one does not get into the habit of lavishly spending and squandering all of one’s hard earned money away.
Another important aspect to keep in mind is that despite saving up a considerable amount of wealth, it is always advisable to keep investing and saving. This will lead to a larger corpus going forward, and with inflation eating away at one’s money it is a good idea to ensure that your money works for you and beats inflation.
Apart from the regular savings and investment plans, there are more options for you to choose from now that the corpus is much larger. For example, art, wine, foreign stocks and even houses abroad are good options. Alternative investments such as art provide good returns in the medium to long term, but since these the cost of investing in this asset class is high, only the well-heeled can afford to partake in this type of investment.
Owning land, houses, and stocks abroad will also diversify one’s risk in terms of political and geography. That is, if there is any issue in one’s home country, they can go to their house in another country without too much hassle. This also has the double benefit of giving returns from an un-related economy, for example if one invests in US stocks while living in India and purchases a house in Australia, the stock market in the US is not correlated with the Indian economy, nor is the Australian real estate market connected to the Indian real estate market. This helps you diversify your risk, and earn potentially higher returns in the medium to long term.
Another aspect to keep in mind is the asset allocation while investing, it is advisable to keep a large corpus (20 - 40%) in debt oriented funds or bonds, where one’s capital is protected, with the remaining being invested in equity instruments, real estate, gold, alternative assets and foreign assets. One should also understand one’s own risk appetite and invest accordingly - i.e. The lower the risk taking appetite, the more gilt or debt instruments should be used and vice versa.
One should also keep in mind that the debt markets and the equity markets typically move in opposite directions, with the debt markets benefiting when equities are down and vice versa. Since most investors cannot keep abreast with the flow of financial information that comes through daily, it is advisable to have a monthly review of the portfolio and reallocate the corpus as required.
It is advisable to invest in Mutual fund through Systematic Investment Plans (SIP). Since a Systematic Investment Plan route ensures that one doesn't need to time the market, the investment in SIP takes place each month irrespective of the market condition thus individuals can benefits from both an up market as well as a down market.
  • Ensure that one makes a budget and sticks to it to ensure the luxury spending does not become a habit
  • Invest in alternative assets and foreign assets to diversify risk
  • Ensure that there is some corpus in debt funds as well as equities to take care of capital protection and growth

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