6 ways to kill long term wealth creation opportunities.

(1) Stopping SIP –

This according to me is the strongest weapon to kill the wealth creation opportunity. How? Let’s have a look at it. Mr. ‘A’ started SIP of Rs. 100000/- (one lakh) to achieve the retirement goal of 10 crores in 20 years (Assuming return of 12%). Today people think it is a very big amount but 20 years down the line, will not be. But ‘Something has come up’ reason comes and Mr. ‘A’ stops SIP of Rs. 50000 after 5 years. Now let’s see the impact of this discontinuation. Instead of 10 Crores Mr. ‘A’ gets Rs.5.54 Crores, shortfall of Rs. 4.46 crores. As per original plan he would have invested Rs. 2.4 Crs over 20 years to get 10 Crs. but because of stopping SIP he invested 1.5 Crs. to settle for Rs. 5.54 Crs. What a way to kill the opportunity!

(2) Pulling out money for ‘that urgent need’ from long term corpus –

Once again ‘Something comes up’. Typically, this ‘Something’ is a vacation, car buying, house renovation etc. This time Mr. ‘B’ who had invested 1 Cr to achieve the goal of 10 Crs over 20 years but after 6 years something comes up and he takes out one crore from the investments which has grown to 2 crs. He took out 1 Cr from the performing investment because he is in love with that endowment plan of insurance which gives 6%-6.5% return. Anyway, fortunately he doesn’t redeem further and after 20 years he gets approx. 5 crores. Therefore, in total approx. 6 crores. Killed opportunity of 4 Crs.

(3) Not understanding the difference between Need and Want–

Easy money available on EMIs, Credit card and show off culture has changed the spending pattern of the society considerably. In the race of one up man ship, people end up spending on Wants without thinking twice whether they really Need those things. Such a behavioral change the society is witnessing kills the opportunity of wealth creation.

(4) Minimum Investments Disease –

A very common question often comes, What’s the minimum investment requirement? How come one’s goal has anything to do with minimum investment? And then people try to negotiate with the GOAL, which is a reality but just to prove themselves they invest lesser than the required. For ex – instead of requirement of Rs.50000 to achieve Rs. 5 crores, one invests only Rs. 25000 to settle for Rs.2.5 Crore and ends up compromising in life. Saved 60 lakhs to miss out 2.5 crore. What a kill.

(5) Minimum Time Disease –

This is really funny. One’s mind is conditioned to invest in mediocre endowment plan for 20 years, PPF for 15years but the same guy wants quick return from market linked products. In fact, it should be other way round. Let’s understand this by following example.

- Investment Per Month (Rs.) - 50,000

- Rate Of Return - 12%

- No. Of Months - 240

- Value Of Investment. - Approx. 5 Crs.

- Investment Per Month (Rs.) - 50,000

- Rate Of Return - 12%

- No. Of Months - 180

- Value Of Investment. - Approx. 2.52 Crs.

- Investment Per Month (Rs.) - 50,000

- Rate Of Return - 12%

- No. Of Months - 120

- Value Of Investment. - Approx. 1.16 Crs.

By lessening 5 years i.e. from 20 years to 15 years, one can kill the opportunity of creating extra Rs.2.5 Cr.

(6) Under-Estimating the burden of tax and inflation –

Most of the investors tend to ignore the burden of tax and inflation. Check this, an FD offering 7.5% interest gross may actually fetch only 5% interest for the individual in highest tax bracket. Assume inflation at 5%, the net return would be 0. Net return = Gross return -Tax -Inflation Instead of investing in tax efficient debt funds, people kill the opportunity of creating wealth creation by investing only in FDs.

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