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Does Investing Take Too Long to Build Wealth

18 Aug 2023

Introduction:

Many people want to achieve financial freedom and live a comfortable life. However, they often wonder if investing is the right way. They may need clarification about whether investing can generate enough returns in a reasonable time frame or whether it is too risky and complicated. 

We present our comprehensive analysis to address some of these common questions and myths about investing and show how investing can help you build wealth faster than you think.

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What is Investing & Why is it Important?

Investing is the process of putting your money into assets that have the potential to increase in value over time. These assets can be gold, stocks, short-term financial instruments, or mutual funds that suits your goals and risk appetite. 

Investing is important because it allows you to grow your money faster than saving it in a bank account or keeping it under your mattress. It helps benefit from the power of compounding. That means you earn interest on your interest. Compounding can make a huge difference in your wealth over the long term.

Suppose you have Rs. 10,000. You save it in a bank account that pays 4% annual interest. After ten years, you will have Rs. 14,802. However, if you invest the same amount in a mutual fund with 12% yearly returns, you will have Rs. 31,058 after ten years. That is more than double the amount you would have by saving. And the gap will only widen as time goes by.

How Long Does it Take to Build Wealth Through Investing?

There is no definitive answer to this question. It depends on factors such as how much you invest, how often you invest, what kind of returns you get, and how long you stay invested. However, some general principles can help you estimate how long it takes to accumulate wealth through investing.

One of these principles is the rule of 72, which tells you how long it will take to double your money at a given rate of return. To use this rule, divide 72 by the annual rate of return you expect from your investment. For example, if you expect 12% returns per year from your mutual fund, it will take 72/12 = 6 years to double your investment.

Another principle is the concept of financial independence. It means having enough passive income from your investments to cover your living expenses. To achieve financial independence, you need to have a large enough investment portfolio to generate enough income without working. A common rule of thumb is to multiply your yearly expenses by 25 to get the size of your portfolio. For example, if your annual expenses are Rs. 5 lakhs, you need a portfolio of Rs. 1.25 crores to be financially independent.

Of course, these are just rough estimates and may vary depending on your situation and preferences. However, they can show you how long it may take to build wealth through investing.

What are the Common Myths and Mistakes About Investing?

Many people have misconceptions and fears about investing that prevent them from taking action and building wealth. Some of these myths and mistakes are:

1. Investing is too risky

While investing involves some risk, it is not as scary as some think. Not investing is riskier in the long run, as inflation will erode the value of your money over time. It can help you beat inflation and create wealth for the future. Moreover, you can reduce your risk by diversifying your investment portfolio across different sectors and asset classes, choosing quality investments that match your goals and risk profile, and staying invested long-term.

2. Investing is too complicated

Many people think that investing requires a lot of knowledge and expertise that they don't have. However, investing is not rocket science; anyone can learn the basics of investing with research and guidance. Many tools and resources are available online that can help you understand and simplify investing. 

3. Investing requires a lot of money

Another common misconception is that investing requires much money that most people don't have. However, this is not true at all. You can start investing with as little as Rs. 500 per month through mutual funds' systematic investment plans (SIPs). 

Conclusion

Investing is the best way to accumulate wealth and achieve financial goals. We have tried to clear some of these doubts and myths and show you how investing can help you build your money faster than you think. Investing does not have to be risky, complicated, or expensive. All you need is a clear goal, a suitable plan, and consistent action. So, don't wait any longer and start your investing journey today. 

 

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