Ravi: Hey Shaila, with the new year coming up, I’ve been thinking about my investment strategy. Do you think the new year is going to be a different one investment-wise?
Shaila: Honestly, Ravi, while each year can bring new trends, the core principles of building wealth don’t change. It’s all about having a disciplined plan and sticking to it, whether it’s a sunny or a rainy day.
Ravi: I’ve heard of Earl Crawley, the Chicago Mechanic :- His story is inspiring—managing to accumulate over $500,000 even with modest earnings. How do I adopt a strategy like his?
Shaila: Earl’s story is about simplicity and education. He lived simply, invested in dividend-paying stocks, and always sought to learn more. Let’s break down some guiding principles for you.
Ravi: Great, where do we start?
Shaila: Begin with SIPs—Systematic Investment Plans. They’re your best friend for wealth creation. They keep you disciplined despite market fluctuations. For example, a Rs 5,000 monthly SIP can grow significantly over 5 years, typically at an annualized return around 11%.
Ravi: How should I align my investments with my goals?
Shaila: It’s all about your time horizon as I keep saying:
– Long-term (5+, 7+ years): More equity exposure. Depending on your risk tolerance, anywhere from 85-100% equity could work.
– Medium-term (3-5 years): Mix of equity and fixed income for balance. Adjust according to your comfort with volatility.
– Short-term (<3 years): Stick to fixed income to minimize risks. Avoid equities as market volatility can impact returns.
– Very short-term (<1year): Stick to liquid, ultra short term funds, FDs and RDs to avoid any capital erosion
Matching investments to your goals helps avoid unnecessary risk while growing wealth.
Ravi: What about protecting my wealth?
Shaila: Insurance is key—think of it as your financial foundation.
– Life Insurance: Opt for a term insurance plan, with no riders, ideally 10-15 times of your annual post tax income. As per the current structure for 1 crore cover for a 30 year old – healthy non-smoking person might cost around Rs 10,000 to 14,000 annually.
– Health Insurance: It is quite essential for you to also protect yourself against any medical emergencies which can derail your financial plans.
Ravi: And chasing investment trends?
Shaila: Avoid that trap. While trends like crypto or any other short term investment options may sound tempting, tried-and-tested investments like equity mutual funds or the traditional plans in the debt category like your PPFs / Sukanya Samriddhi often yield better long-term results. Remember, consistency is the key—better to be steady and sure than chasing volatile trends.
Ravi: So, should I automate my investments?
Shaila: Absolutely. Once you get into the habit of automating your investments per month you eliminate the emotional decisions. Set up your monthly SIPs to make it hands-free, but remember to review your portfolio every 15 to 18 months. As you get closer to your financial goals, balance out your equity and debt to manage risks. You can also exercise the SWP option to withdraw systematically in the mutual funds.
Ravi: So wealth creation isn’t just about making more money next year?
Shaila: Exactly. It’s about creating habits that work year after year. Being disciplined and keeping it simple will go a long way. Make sure to review your portfolio regularly as they are the true drivers of long-term wealth creation.
All the Best 😀
Simplified Money Talks 