I met a young earner on the right side of 30 (years) who wanted help with starting out her investments. My first question to her was the typical personal finance query, what’s the goal? What is your purpose for investing? Her answer was a simple, “Umm I want to make more money.” 

Can one desire to simply make more money? Nothing wrong with this goal, because making more money means creating wealth. Creating wealth can help you sustain a lifestyle that you want through the ups, downs and the beyond the end of your regular earning years.

Here are two things you need to follow while building that portfolio to create wealth.

1: Wealth is not created overnight – Your goal to make more money needs more time too. Let’s say you have Rs 50,000 to invest; is it realistic to think this money will grow to become Rs 1 lakh in 2 years? It could, but for that you will have to take on very high risk; which means that there is also a high chance that your Rs 50,000 will become Rs 25,000!

Wealth is not created overnight, and neither is it created without taking some risk; you have to take appropriate risk and remain invested for 5-7 years in order to create substantial returns and see your money grow. Wealth creation is best allocated to equity securities like equity mutual funds.

At an assumed annualised return of 12% over a period of 5-7 years your Rs 50, 000 can potentially grow to Rs 1.1 lakh. But it’s never going to be a straight-line growth, there will be many aberrations in this upward trending line.

Measure your risk, remain invested and start early to benefit from long term wealth creation.

2. Account for emergencies – Don’t get carried away by wealth creation and forget about life’s emergencies. While some emergencies like hospitalisation, theft, accidents and so on can be covered by the appropriate insurance, you will find that you can’t cover many others. Doctor consultation fees (the trend line for this expense is very steep!), money your house help needs to rebuild the roof of their village house, money your cousin needs to start their business, your child’s braces expense or even your house rent in the month(s) after you are laid off work are all things you can’t plan for in advance.

At an assumed annualised return of 12% over a period of 5-7 years your Rs 50, 000 can potentially grow to Rs 1.1 lakh. But it’s never going to be a straight-line growth, there will be many aberrations in this upward trending line.

Put together they can add up to a lot. Don’t make the mistake of redeeming from your long-term fund for these unplanned expenses. Instead, create an emergency fund; keep aside a predetermined sum every month and build it up for a few months or years as required. Only once you have catered for this emergency fund, start your long-term wealth creation.

Long term wealth creation is an important goal to highlight and plan for. Eventually this can get converted into your retirement kitty. So, don’t feel shy about making more money, start by investing wisely and early.