Live rich: Three simple rules to grow your money
One should allocate investible surplus across various asset classes, such as equities, debt and gold, for earning optimum returns
A disciplined approach coupled with the right investment option can help investors to accumulate wealth in the long run. You just need to save and invest your money on regular basis from your monthly income. This can be in the form of equities, mutual funds, fixed deposits or any other investment options. This principle seems very easy to understand but it is very difficult to follow with rising prices of essential commodities. However, following these three simple rules can help you to grow your money over a period of time.
Asset allocation approach: One should allocate investible surplus across various asset classes, such as equities, debt and gold, for earning optimum returns. A disciplined asset allocation strategy will keep your emotions (greed and fear) in check and help you to avoid two most common mistakes committed by retail investors- investing a large corpus in equity when the market is overvalued and staying away from equities during steep market corrections. One should also consult a financial advisor to help you follow a disciplined asset allocation approach in order to prevent large drawdown during market crashes.
Saving through systematic investment plans: Systematic investment plans (SIP) are more of a saving tool than an investment one. It brings the habit of regular saving by automatically deducting a predetermined amount from your bank account. Investors can start SIPs with a minimum amount of Rs 1,000 (in some cases it is Rs 500). It is advisable to start SIP as early as possible. This will help investors to accumulate wealth over a period of time and get the benefit from the power of compounding. SIPs can help you to reduce your cost of investment by getting more units during market falls.
Penny earned is a penny saved: Most keep large sums of money in their savings account to maintain their short-term liquidity or park their idle funds. However, this entails opportunity cost in the form of foregoing higher returns from alternative options. Instead, invest your money in liquid funds/ ultra short term funds that can generate superior annualised return.