Dear Readers, whether you take it or not, but Long-Term Wealth Creation is the goal for which everyone works hard every single day. And to achieve this goal, even if you are an amateur or a seasoned investor, you need to have an efficient and SMART investment strategy to accomplish your financial goal and create a wealth pool. In this article, I will highlight some important points to consider while you plan your own long-term wealth creation strategy.
The most important factors for a successful long-term wealth creation strategy are to set realistic and SMART goals and to use the right Investment strategy to achieve your goals. Any strategy will fail if the goals are not crisp and clear, or if a suitable investment option is not planned, leading to disappointment, and loss of existing wealth.
Table of Contents
Define your Investment Goal for Long-term Wealth Creation
As soon as you start planning about Wealth Creation, the first step you need to do is to set very clear and SMART goals that you want to achieve through your Wealth Creation Strategy. Let’s take a few minutes to understand what is a SMART goal. This will help you better define your specific goals:
S = SPECIFIC: The goal should be as specific, and clear. Setting a goal like “I need to arrange for my kid’s higher education” is not good at all, because the requirement is vague in terms of calculation. Rather, a goal like “I need to arrange for my kid’s M. Tech. qualification is more specific.
M = Measurable: Now that you have a specific and clear goal, you can now measure how much funds you need for your child to become M. Tech.
A = Achievable: Your goals should be in proportion to your income, considering the factor of income growth every year. Buying a property worth 500 million with an income of 10K is not practical and not achievable. So you need to ensure that your goal is achievable as per the current income, and income growth factor every year.
R = Realistic: Having realistic goals is the key to a successful wealth creation strategy, and avoiding financial loss and disappointment in the future. Imaginations can be as wild as owning luxury villas in all the top cities of the world, but we cannot let our goals run so wild. Each goal set for your future should be practically achievable with proper strategy.
T = Time-Based: And finally, as the legend says, “Time is Money”. If we are setting a goal, we need to set a timeline for it as well. If your kid is in grade 1 right now, and you are setting a goal for their higher education, then you need to set a timeline of max 10 to 12 years for your kid’s higher education goal.
So to set SMART goals for your wealth creation plan, ensure that your goals are very specific, can be measured (in terms of money/time), should be Achievable and Realistic, and always should be Time-Bound.
Start as early, the better
The secret behind a successful wealth creation plan is Time and the power of compounding. The more time you give to your plan, the more time you get to compound your investments, leading to even greater wealth creation in the long run.
A wealth creation strategy, with specific goals, and timelines should be set as early as possible so that your plan gets enough time to bloom, and you can have enough goals being met, right until your goal of Retirement Corpus. 🙂
Have a good Asset Allocation Strategy in place
Once you have set your goals and decided upon a timeline, then you need to focus on an Asset Allocation Strategy, where you need to decide upon various investment options, like funds, debt funds, real estate, gold, etc. At this stage, you need to consider your entry age, goal timeline, returns from various investment instruments, and risk factors involved, and decide the allocation of your funds accordingly in different investment instruments.
Click here to understand more about Long-terms Asset Allocation Strategies.
Once you have your goals, timelines, and asset allocation strategy in place, you need to kick-start the plan. But remember dear reader, you need to be regular with your investment schedule. Any breaks in between will disrupt your target goal due to, as we discussed, the power of compounding. You break the discipline, and you will suffer the planned output. So be regular with your investment plan.
Make the best use of an Equity Systematic Investment Plan (SIP)
Equities provide maximum returns in the long run, even much higher than the rate of inflation. But these overwhelming returns are risk-prone as well. In order to boost your Wealth Creation plan, you should start SIPs in top-rated equities, that are recommended for long-term investment by top experts as well. Besides, SIP ensures that you have a disciplined approach towards investment, and meeting your long-term wealth creation goals.
Keep the Emergency Fund away
Even before you start planning your long-term wealth creation strategy, you should first ensure to save for an emergency fund, that you might require in case of any crisis situation. Usually, this fund should be enough to support you for at least 5-6 months in a crisis situation and should be equal to at least your monthly regular household expenses multiplied by 6 (months). This type of fund should be kept in liquid forms, like bank a/c or so.
Having such kind of emergency fund in place will ensure that your wealth creation plan will not be affected in case of any emergency situation.
Prashant P. ChauhanAuthor @ The Winning Leap
Meet Prashant Pratap Chauhan, the savvy founder behind The Winning Leap, a hub for sharp financial insights and expert analysis in the realm of finance blogging.