Myths about Wealth Creation


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In the Part I we talked about the misconceptions that pull us back from building wealth in long term, also we discussed few common myths.

To read Part I please visit https://timesofindia.indiatimes.com/business/india-business/myths-about-wealth-creation/articleshow/78212151.cms

Here we will discuss a few more myths and important money lessons

Myth – Stock/ Scheme selection is more important than Asset Allocation.

Most people believe that the true wealth creation happens due to proper or right selection of stock or a mutual fund scheme. They underestimate the power of Asset Allocation. Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame.

The goal of asset allocation is to reduce risk and create diversification by dividing assets among the major asset classes like Equity, Debt, Real Estate, Cash, Gold etc. . …

Choosing and sticking to right asset allocation is one of the most important decisions that investors make and also the biggest influence on returns…

Myth – “I don’t make enough money to save”

Often we think transformation will come to our life with an extraordinary event, but the reality is those changes happen when we constantly take small steps that moves us closer to our goals, in a gradual and sustainable way.

No matter how little you can save, the habit of putting aside a little bit each month will generate the motivation and persistence to better manage your money, regardless of how much you’re currently making.

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The rule of thumb is 50/30/20 – if possible.

That means, 50% of your income for essentials (rent, food, etc.), 30% for discretionary spending, and 20% for savings.

Of course, this doesn’t work for everyone, so find your fit – even if it’s 10% of savings.

A retail investor is best advised to invest thru Mutual Funds. Today, we have a large variety of Mutual Fund schemes available to suit the needs of every type of investors. An investor can participate in asset classes like Equity, Debt, Cash and Gold through Mutual Funds

Myths – Investing in schemes that promises very High returns is safe

Thousands of crores of hard earned money of poor investors have been lost in last few years in various fraud schemes. Unfortunately, the greed of higher return attracts investors to these ponzi schemes. The promotors of these schemes exploit the lack of knowledge of gullible, uncertified agents to trap small investors. Investors are advised to invest in completely regulated investment tools like PPF, Mutual Funds, NPS, Bank Deposits etc.

Myths – Retirement planning is for Old

The biggest myth that got busted over the years was that Retirement Planning is for Old. Almost all youngsters believe that they need not do Retirement Planning till they are Old. It is a myth with huge and far reaching consequences. The life expectancy has increased significantly in last few decades. People are living longer and hence the need for greater corpus for retirement years. The fact that healthcare is significantly expensive than earlier makes it all the more compelling. Investors are advised to start saving from the very beginning of their career in a disciplined manner. Starting small and gradually increasing, disciplined long term investing could create a decent retirement corpus. SIP is a very good option for creating retirement corpus.

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To sum up, important money lessons

  • Spend less than what you Earn
  • Start Saving Early, for the long term and in right Asset Class
  • Inflation is a Reality. You can beat it by investing in right Asset Class
  • Investing can be started with a very small sum
  • Understand and Gain from the Magic of Compounding
  • Right Investment Portfolio would have more than one asset class
  • MF is a fantastic Investment tool. There is a large variety of Funds
  • Be cautious and do not invest in unregulated and fraud schemes
  • You need a Financial Doctor. Doing it yourself is dangerous
  • Retirement planning should start with the start of Career

by

Deepak Mehta

Head – SIP, National Distributors and Retail Banks

UTI Mutual Fund

An Investor Education Initiative by UTI Mutual Fund

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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Disclaimer: Content Produced by UTI Mutual Fund





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