5 Challenges which you should overcome to create long term wealth

POSTED BY manish ON January 21, 2016 COMMENTS (121)

Do you want to create a lot of wealth? Do you want to see crores of rupees in your bank account? I am sure you know that’s not an easy task. You also know, that it will take a lot of time and dedication to create the wealth over long term. Do do you know that its more tough than you think? I will show you why?

wealth creation

Have you ever seen those retirement calculators online, where you punch in your numbers and find out how much corpus you will be able to generate over the years if you consistently invest a fixed amount year after year at certain rate of interest?

The calculator throws a big number at you and you feel – “Wow … That’s looks straight forward and simple”

Below you can see an example.

I calculated how much wealth a 30 yr old guy can generate by the time he retires at age 60 (30 yrs tenure) if he invests Rs 20,000 per month at a return of 12% per annum. Below is the result.

wealth creation long term

It looks so simple on paper. One can generate wealth of Rs 7 crores in 30 yrs period if one consistently invests Rs 20,000 per month.

Doesn’t it look over simplified? It definitely is!

While the calculator above makes it look like a child’s play to create long term wealth, in reality – it’s definitely not that easy and there are various things to be considered here, which I want to discuss in this article.

What are the assumptions in the calculator above?

If you look at the calculator above and the numbers, you will realize that 5 assumptions which are

  • The investor keep earning over years and bring back the income
  • The investor will have enough surplus each month
  • Investor will be able to generate 12% return over long term
  • The investor will not disturb his wealth creation process
  • The investor will not use the money out of the accumulated money till the end of tenure

Now if you look at the 5 points above, long term wealth can be created only if all the 5 points above are true or maximum of them are true. Each of the point above is a challenge in itself. If you overcome all these 5 points, you are then set to build long term wealth.

So now, if you try to capture these points as the ACTION and RESULT, then here is how it looks like

wealth creation model

So let’s touch on each of these 5 assumptions one by one and see in detail and see what are the challenges in handling them

Assumption #1 – The investor will keep earning over years and bring back the income

Let’s start from the most basic foundation point.

A lot of people who have been earning from many years (lets say 5 yrs) and never faced any issues in their career seem to feel that its a cakewalk to continue doing it without any issues for next 20-25 yrs of their life. They think that it would be a smooth ride. However you need to know that

  • There is a section of population who are struggling in their career and will not be getting same salaries if they switch jobs
  • There are people whose income is not rising as per their expectation and a lot of people take salary cuts
  • A lot of investors are out of their jobs/business due to competition, policy changes in industry
  • A lot of investors at times spend many months without bringing back any income because of health issues, layoffs and other reasons.

At least 3 of our clients have stopped their SIP’s in last 6 months because their income have stopped/reduced due to some issue at their workplace. While it might be a short term problem, you never know if it can extend for a very long time for some one. One client is working in Middle east, and his job is not that stable and he is damn scared of this fact.

Another client told me that as per his understanding, he is getting the maximum salary he can command in his industry and if he loses his job for any reason, he will have to join another company at a lower salary.

One client is hell scared because he is just surviving his job from many years and if he is fired due to non-performance, he does not believe that another companies will hire him at the same salary

Focus on your “employability” and potential to earn

My partner Nandish Desai, says a very important point about employability – “To get a job, you need to be useful for someone”

You need to make sure that whatever you do, whichever sector you enter, which ever skill you acquire – do it like a pro. Become a highly useful person in your domain of work. Be among the best. Your skills should be outstanding and you should be the master of what you do. If that happens, you will be highly sought after and everyone will want to hire you.

This way you are ensuring that all your future income is secured. If things get tough in your industry, you will be one of the last people who will face issues. If you face any issue, you will soon find a new job. And if you want to switch, you can command a better salary.

Focusing on your career and investing in your own development is one of the most rewarding decisions you can make in your financial life. Only when you ensure that you have taken care of this point, others points will come into picture.

You need to understand that only if your future cashflow is protected, only then you can save from it and only then you can think of the returns and everything else. No income, no wealth in future !

Assumption #2 – The investor will have enough surplus each month

Taking the example above, the 2nd assumption was that the investor will continue investing Rs 20,000 per month over the next 30 yrs without fail. For you personally, this number can be Rs 10,000 or Rs 50,000, the same is true for yourself.

Will you be able to consistently invest that much each month? Will you be left with that much each month? year after year?

You might be able continue that for some months or years, but think of the real life issues which we all face. And you never know your life will take turns, you never know how unpredictable things are. You might have to switch jobs because of health?

When you will have kids, your expenses might shoot up, you may face an emergency which might last for many months to come, there can be health issues and you can get into the never ending cycle of –

High income -> high expenses -> less saving.

Infact I have seen this in reality. Forget about investing each month, one of our client is redeeming back from his mutual funds corpus because there is a prolonged medical emergency at home and he is not able to handle all expenses the way he had planned before.

My whole point is that its very very tough to maintain the consistency and discipline in investing in real life and there will be disturbances.

High Lifestyle is making saving more tough

Now a day’s its more common to see people living on paycheck to paycheck basis. The high lifestyle and the increased consumerism have ensured that even if you are earning high, it will get tough for you to save. Salaries like Rs 1 lac or 2 lacs per month are very common these day in many cities, but the savings are not in line with the salary.

Hence, you need to ensure that you after your expenses are done, you generate a consistent and a minimum 20% of investible surplus from your salary. Take it as a game and try to win it each month.

Assumption #3 – The investor will be able to generate 12% return over long term

The next assumption is that the investor will generate 12% return over long term from his investments? Now where do you invest your money to get more than 12% returns over such a long term?

Any guesses?

The answer is equities !. It has to be in shares, equity mutual funds, ETF’s, Index funds etc. This is not easy thing for a majority population in India, because most of the people in India do not understand how equities work and banking products are their lifelong favorite. They are earning 8-9% (6-7% post tax) from years.

So for them to earn 12% would be very tough because first they need to get the clarity about how equities work and get comfortable with it.

Data and chart:

Now let me show you some data and charts which will convince you why you should be in equity to earn 12% return on your investments.

Below is the chart which shows the CAGR return for 10 yrs periods if the money was invested in NIFTY. The data is from 1st Jan 2001 to 1st Jan 2016, so there are many 10 yrs period like

  • 1st Jan 2001 – 1st Jan 2011 (first point)
  • 2nd Jan 2001 – 2nd Jan 2011
  • 1st Jan 2006 – 1st Jan 2016 (Last point)

We then plotted the CAGR Return for all these periods and below is the answer. The CAGR return almost always was above 12%, however for few months towards the end it was a bit below 12% .

CAGR return nifty 10 yrs

Another graph which I want you to see is the 10 yrs CAGR return chart from Sensex, which is for its 36 yrs of existence.

So there are 26 different “10 yrs” tenures and we calculated the CAGR return for all the 26 data points and below is the result. Around 21 times out of 26 , the return was more than 12% and at times it was very high like 20%-30% . Few periods had less returns like 6% or 11% , but then if you look at the overall 36 yrs period, the CAGR return converts to 17% return.

CAGR return sensex 10 yrs rolling returns

Now while it’s very easy to conclude that if you invest in equity over a long term, you will get required 12% return, its very tough to practice in real life, which we will see in next point very soon.

asset class returns

Lets me share with you that a very small percentage of our India population invests in Equity.

The major money lies in FD , Gold and insurance products and even real estate. And it’s going to be very tough to generate 12% return from these asset classes. Infact Morgan Stanley research has clearly shown that equity has beaten all the asset classes in long run and below is a snapshot of that research.

So if you want to build wealth over long term and you are investing majority of your money in FD, understand that your post tax return is lower than the inflation.

Your money might be growing in numbers (Rs 10 lacs became 20 lacs in 9 yrs), but the worth of your money has come down (20 lacs today can buy less of what 10 lacs could have bought 9 yrs back). You are infact getting poorer in a slow motion and you are not realizing that.

Assumption #4 – The investor will not disturb his wealth creation process

Read the following question and answer.

Q – Do you know what is the biggest challenge for an investor if he has invested in equities (mutual funds or Stocks)?

ANS – To remain inactive and sit tight without doing anything and let his wealth grow.

Making money in stock markets is challenging, not because markets have any issue, but because we investors have behavioral issue. We can’t handle the uncertainty and volatility which comes with the stock market. Its not for weak hearted.

For some one who has been with FD’s and have the habit of seeing his investments grow in linear fashion, can literally go crazy with mutual funds because it brings so much of ups and downs and volatile movements.

Should I stop SIP when market is falling?

In the last 2 weeks itself, we have got many emails from our clients whose SIP’s are going on in equity mutual funds, asking if they should stop their SIP’s as markets are falling? I have told them to act like a ninja investor and see it as an opportunity and pump in more money because in coming years we might see a very good bull run? (any body remember what happens for next 2-3 yrs after 2007 crash ?)

Note that all these clients SIP’s are running for very long term goals like retirement or children education which are going to arrive only after 15-20 yrs. There is no problem as such with that behavior.

It’s very natural, but I am just trying to tell you that it’s not that easy to handle the pressure which comes from the volatile nature of markets and very few investors have that dedication and understanding of how things work in stock market.

Very few people can control their greed and fear and that’s the reason very few people are able to make the most of the returns from the equity markets over long term. Below you can see a snapshot of kind of queries which start coming up if markets show any kind of fall for a long time like 6 months or an year.

markets are down

Cycle of Greed and Fear

If you see the stock markets right now, you will realize that we currently are in that same phase where investors panic and take out the money from their portfolios. Markets are falling from last 1 yr and especially this month it has gone down by a big margin.

So even if an investor is investing a good amount each month and he has read about how equity markets work and they understand the game of equity, still it’s very tough for an average investor to stay calm and stay with markets consistently for a very long time.

Some stop their SIP’s , Some redeem their money and shift it to FD’s thinking – “I will again be back, when the markets will calm down and start going up”.

However, you never know when that up move started and by the time you realize, you lose the next bull run. Below chart clearly shows how 99% investors think and behave in stock markets.

cycle of greed and fear

So what is the solution? What should you do?

Remember that if you are in equities with a long term view like 10-15-20 yrs, then you are going to see many cycles of ups and down. You can’t escape it. You need to think of the down market as the “sale” where you can accumulate more stocks or mutual funds units at a cheaper price so as to gain from the up move later.

And when markets are going up, don’t redeem your money or try to “book the gains” because you will most probably miss the bigger up move trying to redeem the smaller up move. You need to understand that you are not there for “trading” or short term profit booking (incase, you are there for trading, then this does not apply to you)

Just sit tight, keep your SIP going and make sure you are in right mutual funds (not the best, because it does not exist). Review them in few years and let the process of wealth creation take place. It requires patience and only a small percentage of investors are going to reach the final destination. Be one of them.

Assumption #5 – The investor will not use the money out of the accumulated money till the end of tenure

Having 5 lacs in your bank account is very different from having Rs 5 crores. You might think – “What’s the difference? it’s just 100X, rest everything is same”

No, your feelings about your money, your risk appetite, your thoughts around money, your desperation to do something will be at a very different level when you have 100X money in your bank account.

It’s a very tough thing to “not do anything” when you have so much money getting accumulated in your account. Once your corpus reaches a respectable limit like 80 lacs or 1 crore, you will start thinking in these lines

  • Lets shift some money in FD now.
  • Lets upgrade our house now, I can surely take out 50 lacs from my portfolio
  • Now I deserve that dream car I always wanted, I have good money now
  • Let me have a grand wedding for my children, after all – I have a good corpus now

Your lifestyle will go up, your vacations will get luxurious and you will get all the reasons to spend the money and take a dip in your portfolio.

Let me be clear, that I am not saying there is anything wrong with spending your money or using it for yourself.

please do that. After all, if you have managed to earn so much money and accumulated the good corpus, you surely deserve a better lifestyle.

All I am saying is that it’s a challenge to let your portfolio grow and not disturb it. So in our example in the start of the article, you might not reach 7 crores as per calculation, but may be 4.3 crores or just 3 crores, because you keep taking out the money out of your corpus many times in between for various reasons.

If you are just taking out a portion of your corpus and reinvesting in something else which you can redeem back later, it’s still fine. But if you are “spending” the money and consuming it, then it’s GONE. That part will not reflect in corpus now and you will have a lesser corpus by that extent.

If you can make sure you have that ability to stay calm and see your wealth grow without disturbing it, then you are bound to see a good amount of wealth in your life.

So here is the final checklist before you start your wealth creation journey

  • Spend a good amount to time to understand how equities work in long run. I have explained about equity in the 3rd chapter of my 1st book – “16 personal finance principles every investor should know”. Get a copy and read it
  • Work on your career strongly and become very very good at what you are doing. Make sure you are highly employable even if the bad time comes. This will make sure your cash flows are more or less ensured.
  • Spend 10% time on cutting down your expenses if there is any scope, and spend 90% of your energy in increasing your income. Remember, reducing expenses is tough and has a lower limit. Increasing income does not have a ceiling.
  • Make sure you start the SIP in equity mutual funds with a long term perspective. When markets fall, rejoice ! and keep adding more money. Be a tough hearted and you will be rewarded over long term
  • Make sure you plan for other goals separately so that you do not use your main corpus in between for small things

Let me know if your way of looking at long term wealth creation has changed or not by reading this article. I would love to hear your views.

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121 replies on this article “5 Challenges which you should overcome to create long term wealth”

  1. Imran says:

    I have a query regarding amount earned by investing in mutual funds,whether the final amount is taxable????

    1. No ,if its in equity mutual funds and completed 1 yr of investing

  2. Dileep says:

    Hi Manish and Nandish!!

    Great to see that many people have started reading your blogs and could see many new members asking lots of queries.
    Wishing you both all the very best.

    One request is why don`t you plan one of your workshop in Hyderabad and i think you haven`t done any in chennai till date.

  3. Shahid says:

    Hi

    Nice article.

    I m new to sip and not actually familiar with financial terminology. I seek advice from you on below aspects.

    1. I have a daughter of 3 yrs old and I want her to become doctor by profession. Currently it takes around 10 to 15 lac for the course in India in Govt Colleges. In private college its around 30 -35 lacs. Corpus would be needed when she gets 16.

    2. I m a businessman with an average income of around 40000 per month. My wife is a homemaker. How should I plan for secured future for both of us. I don’t have any loan.

    3. How should I invest in SIP. 5000 Rs per month or 2000 on my name 1500 on wife’s and other 1500 on daughter’s.

    Please help me with best advice. 🙂

    1. Hi Shahid

      Our team can resolve all these issues and also help you to invest in mutual funds . Kindly leave your details at https://www.jagoinvestor.com/solutions/invest-in-mutual-funds

  4. Swapnil says:

    Thank you Manish.
    Really an eye opening article. I have 32K salary (with much expenses) and I was thinking to do same kind of stuff. But then I realized the cons of blind investment. So I will start investing small amount for long term.
    Can you please suggest how to invest in SIP for such a long period and good fund.

    1. Hi Swapnil

      I can see that you are interested in investing in mutual funds. I want to share that now you can invest in mutual funds with Jagoinvestor as your advisor

      We create a FREE online account for you, from where you can invest and redeem online.

      Our team will be happy to explain you more on this.

      Find more at https://www.jagoinvestor.com/solutions/invest-in-mutual-funds
      Manish

  5. Santanu says:

    Awesome article Manish. I think the most challenging part people are facing these days is controlling the life style expenses and increasing surplus amount every-month for saving. Creating long term wealth is a must and one have to start investing money via investing stock market + PPF way.

    1. True ..

      I agree with your views..

  6. FASEAHUDDIN says:

    Nice article

  7. sanjay says:

    hi
    this is very good site for investors

    1. Thanks for your comment sanjay

  8. Anirudh says:

    I was thinking of a long term investment. Now will think of it more wisely after reading your wonderful article.

    1. Glad to know that Anirudh ..

  9. Arindam says:

    Hi Manish,

    You are simply awesome. i am new to SIP n equity and to be frank quite apprehensive also. I would like to take some more guidance from you regarding investments with SIP as another 6-7 years I am planning to switch my job.

    Regards

    Arindam

    1. Hi Arindam

      I can see that you are interested in investing in mutual funds. I want to share that now you can invest in mutual funds with Jagoinvestor as your advisor

      We create a FREE online account for you, from where you can invest and redeem online.

      Our team will be happy to explain you more on this.

      Find more at https://www.jagoinvestor.com/start-sip

      Manish

      1. ArindamChaudhury says:

        well I tried to register with your website but there was some issue with settings n password, so could not register.

        1. What issue are you facing exactly !

  10. Mumtaz says:

    Very nice article for a amateur like me. Real eye opener.
    Thanks Manish.

    1. Thanks for your comment Mumtaz

  11. Pravin says:

    Great Great Article.

    1. Thanks for your comment Pravin

  12. Nikhil says:

    Hi Manish,

    Great article and very good insights for the long term investors. I have been a regular investor in MFs myself and now look at long term goals rather than short term fluctuations of the market. BTW from personal experience, reviewing your MFs performance in 2-3 years will help a lot.

    I have just a few questions. I want to invest another ~4L in equity mutual funds. I wanted to know if i should invest it through SIP route (~20k per month in various MFs) or lump sum when i see a dip in market or a combination of both. Some of the MFs that i have shortlisted are:

    1) Axis Long term equity (ELSS)
    2) Birla Sun Life MNC
    3) UTI MNC
    4) UTI transportation and Logistics
    5) Mirae Emerging Bluechip.

    Would love to hear your views on the SIP vs lump sum investment and choice of MFs.

    1. Seeing the current market conditions , I would suggest putting a lumpsum in 2-3 chunks (distributed in 2-3 months)

  13. Chiraag says:

    Mr.Manish, Was a low profile investor in equity but was never serious.lost good amount of money still dint feel worried.Never tried sips on mutual fund nor was so much interested in fixed deposits.invested for the last 5 years in real estate and land property.
    But now things have changed for me and I have invested about 5 lakh currently and keen to invest 5lakh more in equities by this month.this time my investments are serious and for long term perspective.
    Am doing lots of research on equities. However,I want to know whether am wrong in not chosing me and ETF’s.Please advice…..my plan currently is to push some good investment into equity market may be a portfolio of 20l and then think of MF and Others…

    1. Its fine if you are into Stocks . But the only issue if that you should have a good diversified portfolio ..

  14. Gaurav says:

    Hi Manish,

    I am 28. I don’t have a single policy or investment made as of now. I want to start with investment 6-7000 rs per month. In a year 70k. Please suggest what plans (LIC, mutual funds, sip, post office plans etc). What and how should diversify it. Please help.

    1. Hi Gaurav

      I can see that you are interested in investing in mutual funds. I want to share that now you can invest in mutual funds with Jagoinvestor as your advisor

      We create a FREE online account for you, from where you can invest and redeem online.

      Our team will be happy to explain you more on this.

      Find more at https://www.jagoinvestor.com/start-sip

      Manish

  15. prabu says:

    Hi Manish ,

    A good article ,I understand equity is a long term investment and markets mirror economy but i have one small question.One fact from the great books of peter lynch and other value investors is to invest in the stocks of products which sell in the markets and which we use day to day to have an idea of the company growth.But in india i observed lots of fmcg comapnies whose product we use a lot , who have ads in tv channels are not at all listed ,are our markets a good barometer of our economy really when lots of high growth companies are private and not at all listed .

    1. As I dont have much idea of value investing , I think I am not the right person to comment on that !

  16. Vishal says:

    What is better ? Investing X amount as SIP or investing same X amount to repay your liabilities like Home loan etc?
    Please suggest.

    1. INvesting in SIP is better

      1. Shamik says:

        Would your answer change if it was a personal loan instead of home loan? Given that home loans are around 9.5% and personal loans can vary from 12-14%?

        1. Yes, loan is a loan !

  17. Praveen says:

    thanks Manish… Its a great eye opener and helps me to understand why investing in ones career is so important for meeting other goals. My 8% of income go to SIPS’s in Mutual Fund and and I invest the remaining savings to the same funds monthly. My thought process is, in case of any temporary issues, still I will be able to invest this 8% SIP’s. And even I will be able to invest more, if there are any additional income like bonus etc.

    1. Hi Praveen

      Thats great to hear !

  18. niyazashraf says:

    Hi Manish,
    Great article , as usual.
    But I’ve long had some doubts. I generally trend to be distrustful of statements that are repeated by all and is believed as a dogma.
    My doubts are :

    1. Are your numbers really true? I just calculated the CAGR from Sensex (1996-2006), and it comes to only 10.68 %. So, what that means is that, a person who had invested in 1996, and retired in 2016, had only made gains of 10 % ( assuming he invested in the right stocks/MFs) I hope I have not made any mistakes in the calculation . Ive used the calculator at https://www.investinganswers.com/calculators/return/compound-annual-growth-rate-cagr-calculator-1262
    Please recheck it

    2. How can we be even reasonably sure that equity will continue to give the same returns over the next 30 years, based on past performance? Another ‘truth’ that I keep reading is not to buy stocks/MFs based on past performance, but on the structure & quality of the venture.

    3. What if, when I retire after 30 yrs ( I’m 30 now), the market is bearish. Considering that we see booms & busts every 6-10 years, and considering that each ‘bear phase’ lasts 1-3 years, am I not going to be in a difficult situation then?

    I’d be grateful if you could clarify these.Thanks

    1. Krishnan says:

      Hi Niyaz,

      Fair questions.

      Let me try and address your concerns, especially, point 2 and 3.

      As I had mentioned in my previous comment, it is important to revisit your investment strategy based on the prevailing market conditions and relevance of your goal. This needs to be a regular activity and not a one time activity. Accordingly, you tend to balance your portfolio and investment strategy at regular intervals, may be once in every year. Such a re-balancing approach will help you to achieve your goals and not create a difficult situation at the hour of need.

      As far as the return of sensex is concerned under point 1 of your comment. I am still to evaluate your and Manish’s calculations. However, my immediate view based on previous studies and historical analysis of similar data suggests that one should expect a return of around 12%-15% from equities. Ofcourse, this will depend on the quality of one’s selection.

      Regards
      Krishnan

    2. Hi Niyaz

      A very good question I must say. Let me answer

      1. You have correctly done the calculation. Consider a restaurant, which serves good/amazing food, but then out of 100 times, there is always 2-3 days, when the food is just average or not that great. Do you say that the restaurant is bad or not that great ? Or you look at the total number of instances and then say how many times it has been bad ?

      In the same way, the 20 yrs period which you have taken , is the worst of the worst 20 yrs tenure, In the same way take another instances of 20 yrs, like 1979-1999, or 1980-2000 . Like this there will be multiple 20 yrs tenure , do it for 18 yrs tenure, do it for 15 yrs tenure

      See what results are you getting .

      Also another point is that this is SENSEX returns, do it for a mutual fund which is actively managed and you will see that the return for a 10/15/20 yrs tenure is never less than 15-17% over long term

      2. We cant be . Because there is a potential to high return , there is always a risk that returns might not be there . If you want stability and consistency, mutual funds are not the place to be in .

      3. Do you think you will be sitting idle for 30 yrs and wake up only at the end day ? It does not work like that, once 70-80% of the tenure goes off, you should be slowly shifting your money into more balanced/safer funds . Its not always the end day when you act !

      Manish

      1. niyazashraf says:

        Hi Manish,
        Thanks for your reply.
        i take your view on point 3.
        But about point 1 , you are right…True, 1979-1999 registered a growth of 20.61%.
        But…Growth during : 1992-2012 = 9.7 %. and 1994 – 2014 = 10.22 %

        Is it reasonable to compare the pre-liberalisation market with what it is now?. Is it likely that the markets would grow at such a rate in the future? By what I understand, the rapid upswing in the indices during that time was because of the opening up of the markets, new manufacturers entering, lots of foreign capital etc etc..in short, a thoroughly ( and well justified) buoyant mood among investors, which was matched by industry production ( until the next crash of course). I feel that the examples which you mentioned – Growth during 1979-1999, or 1980-2000, may not be reproducible in the future

        Well, what I’m basically asking is , do we expect the markets to keep going up indefinitely? Will it / Can it touch 50000? Is that how it works? There has to be some ceiling right? I’d be grateful if you or someone could explain in some detail
        Forgive my ignorance. Finance is not my specialty 🙂

        1. Very good point . I know its a general question in every investor mind , after all a higher level ceiling should be there. This is how it will come to mind . But you need to understand that markets are nothing but a barometer of economy. As simple as that. Its like a thermometer. It will move as the economy moves.

          So when you say that markets index has to have a higher level ceiling , that means economy has a higher level ceiling ..

          A stock price is exactly like index and it reflects the company growth. So stock price will keep on rising as the company grows.

          Now coming to the point, yes, it can happen that markets might not perform in the same manner like it did in last 20-30 yrs, but then still its still going to beat traditional products like FD and bonds etc over a long term.

          All you need is 2% more than the inflation and thats the capacity of the equity in long term. And to end this conversation, I would say that one has to take that risk if one wants higher return . If you want 100% assurity, then you need to stay with FD etc.

          I hope I was able to clear up some doubts ..

  19. Krishnan says:

    Hi Manish,

    I am recent addition to your large reader database. First of all let me congratulate you for a detailed and excellent article. I am also a practising financial planner. In my opinion, the above 5 assumptions are surely the pillars for an effective financial planning. The only worry is the fact that most of the investors do not understand the nuances of effective investing. I have many clients who blindly invested in mutual funds and in fact also stayed invested for a reasonably long period (above 5 years). Unfortunately, neither their planner nor the investor undertook a periodic review of their investments. The result is a big Disaster. As reflected in one of the charts above, markets are going to have a cyclical trends. The challenge comes when cycle is downwards at the time of your goal achievement period and the investor is continuously taking a higher exposure to equity while nearing the goal. Re-balancing of the portfolio is in my opinion the 6th important pillar for effective achievement of goal.

    1. Hi Krishnan

      Very true 🙂 . Thanks for sharing your experience with all of us !

  20. mamtabalani says:

    Hi, manish commendable work. Do let me know your views about SIP AND sbi mutual funds.

    1. SBI has hundreds of funds :). Which one are you talking about ?

  21. Minu says:

    Hi Manish,
    I just wanted to share an incident with me that happened today !
    I am regular reader of your blogs on personal finance
    After taking inspiration from yours and Hemant Beniwal’s Blogs , I had started my own goal based financial planning three years ago with a pure term plan , investments in PPF and SIP in diversified equity MFs
    Last week , a financial planner approached me. After giving a due diligence , I though of verifying my plan with him
    For first 2 meetings all went well , but today he surprised me by bring a person along with him , whom he called his mentor . He was nothing but an LIC agent !!! who nearly sold me a child plan (but I did not but it ) . I was so upset . I am feeling cheated now .

  22. Aditya says:

    Hi Manish,

    A gem of an article!

    Any suggestions of which MFs to start with for someone starting in their late 30s with SIPs for approx 20K per month for a 20 year tenure to build a corpus (for child education, retirement etc)?

    Thanks

    1. Jitendra says:

      1. Franklin India Bluechip
      2. HDFC Equity
      3. SBI Magnum Midcap

  23. Aditya says:

    Hi Manish,

    Another gem of an article!

    Any MF suggestions for newbies to get started with SIPs for a 20 year term towards child education, and retirement?

    Thanks

  24. Sameer says:

    In previous times most of the wealth building was done by Real Estate. Also in 90s FDs were also yielding in the range of 9-12%. IN times to come, I feel neither real estate are going to accelerate like this not FD returns like 11-12% are going to come back. So only wealth builders could be Business (Equity Markets) or Commodities.

  25. Vikash says:

    Hi Manish,

    Believe me, your blog is my only reference website or can say guide for all my financial issues. Every time, I visit this website and search something; I get it and that to in detail.
    You are really awesome and I would like to thank you for your hard work you do to bring such awesome articles in front of us. These articles help us a lot to understand all finance related things.
    Keep up the good work and I heartily wish you all the best. Thanks

    1. Glad to know that Vikash 🙂 .. Keep reading !

  26. Mansoor says:

    Every time I visit your website, there’s something profound that I learn in a very crisp way. Your assumption#1 is quite interesting, scary and thought-provoking. It really put things into perspective for me. My life has been so busy between work and family, it has become a routine and did not think about it. Thanks for sharing really nice articles, appreciate your efforts.

  27. chetan says:

    Manish,

    While you find a lot of online calculators to give you the output. I was trying to compute this figure on my own, I used the FV formula which is FV = PV(1+R)^N. However doing it for longer time 120/180 months takes time. Is there one formula where one can calculate the FV when one knows the exact cash outflow per month.

    1. I didnt get it, Please share the numbers and the exact scenario for which you want to calculate ?

  28. George says:

    Excellent article Manish. Something which stuck to my mind when i came across Seth Godin on investment goes as follows

    “Spend your money on things who value increases in the future”.. Note he used the term value. You realize the choices are limited when that sentence is understood fully.

    Educating yourself will increase the value in future.
    Having an SIP would increase the value in future.
    Learning cooking would definitely help in the future.

    Buying a fancy car – nopes definitely not.
    Buying the latest smartphone – never

  29. Krish says:

    Hi Manish,

    I started reading your blog today and I found a wonderful post in this.

  30. Bitu says:

    A revelation. “when the student is ready the teacher comes”

    1. Thanks for your comment Bitu

  31. Dinesh says:

    Excellent information and nice approach towards thinking to create great wealth !!

    1. Thanks for your comment Dinesh

  32. Kapil says:

    Manish – A great article after a long time!! Congrtulations.

    Actions I took after reading:
    Assumption 1 – Bought few books to upgrade myself in my area to stay “useful”.
    Assumption 2 – Invested some surplus in Emergency fund, so that in any emergency I can still pay for my SIPs
    Already taken care for Assumptions 3, 4 and 5. All thanks to you for that :).

    Keep writing!! And sharing!!

    1. Thanks for sharing that Kapil

  33. sunilsiddamsetty says:

    very very very helpful in making right decisions thanking all in jago a Real Jago for me.

    1. Glad to know that sunilsiddamsetty ..

  34. Lalit says:

    Manish,

    Generating corpus of 7 crores in next 30 years is roughly equivalent to today’s 40 lakhs if we consider double digit inflation of just 10 %. So on a more realistic note, if want to target corpus equivalent to today’s 1 crore, then the figure comes out to 30 crore which would require us to invest atleast 50K per month and also increase the investment amount anually by atleast by 8-10%.

    1. Thats a different discussion 🙂 .

      The example I took was just for illustration. Yes, your point is correct and one has to choose their own numbers.

      Manish

    2. Anjan says:

      I don’t think things are that bad. If that is the case, we might as well stop saving altogether and start splurging. How many people can save 50K a month to start with and increment it my 10% each year? If it comes down to this, then barring the top 1% nobody else can ever think of retirement.

      I believe inflation and interest rates go hand in hand. We can’t have a situation where inflation rate is as high as 10% but the interest rates have gone down to 5%. Then we would all be doomed ha ha.

  35. RevanPH says:

    Realy a eye opener for beginners like me. All 5 points with supporting data helped me understanding. Thank you for simple but great article.

    1. Glad to know that RevanPH ..

  36. Manisha says:

    Thumbs up for the article. Its true and all these parameters are so important to take note of.

    1. Thanks for your comment Manisha

  37. devgolchha says:

    manish,
    article is simple and very close to reality. I have used the article points and mailed them to my existing clients. Personally I found a lot to learn from it and will surely adopt the teachings.

  38. Divyang says:

    Nice Manish. Keep it on.

    1. Thanks for your comment Divyang

  39. Sandip says:

    Great writing and useful too. And like any great writing this one is also honest.

    1. Thanks for your comment Sandip

  40. Nadeem says:

    Manish ji

    very well written article. I immediately shared it with my college going Son.

    1. Glad to know that Nadeem ..

  41. Sreenivas says:

    But Earning 12% every year is the problem right? May be we should consider around 8% an year for investing to make lump sum for your retirement..

    If you make 12% that’s always a bonus..!!!

    1. You can surely do that, but then each month you have to put almost double amount to reach the same corpus.

      1. Sreenivas says:

        Thank you for your response Manish.

        Yeah you are right.We definitely have to contribute bigger amount as returns expected are less..

  42. PVNMURTY says:

    Great work sir,

    you are educating towards wealth creation.

    Keep doing further,

    Thanking you

    1. Thanks for your comment PVNMURTY

  43. Happyinvest007 says:

    HI Manish,

    That’s excellent article!! Great work, keep it up 🙂
    This gives an idea/direction about how a common man can save money for his long term goals.

    In one of your comment you mentioned that you have more than 400+ posts in drafts, so I am waiting for all of them and wishes that your draft always be full of posts/articles 🙂

    1. Thanks for your comment Happyinvest007

  44. Anonymous says:

    Manish – After so reading so many articles on your site, I have often wondered whether there is any thing more to be said. And as always, you pleasantly surprise us with more interesting perspectives. Keep up the good work!

    1. I have more than 400+ posts in drafts just for your information 🙂

      1. Raj says:

        Wow Manish!! that’s a great number to live on and we can expect more diversified posts from you in future..

        1. Thanks for your comment Raj

  45. AbhijeetPatki says:

    Another fantastic article..
    Noting the comparisons of CAGR returns indicated in the table, I think the returns for property do not count for the long term capital gains. One drawback of that investment is that even if you realize the gains by selling your property, one has to buy new property to save on the Capital Gains within 2 years. Or if someone requires money then one has to pay the capital gains – short or long as the case may be. After considering the capital gains and other fees that include legal, brokerage etc., I wonder how much returns does one actually get! It is a big chunk!

    1. Thats true Abhijeet..

      NOthing is so much illiquid as Real estate, but then if you are lucky the real estate can give really amazing returns , especially in case of LAND

      Manish

  46. Sanwarmal says:

    Dear Manish

    Your articles touches the question air in common man’s mind and give direction to their questions and guide them for better financial planning.

    1. Thanks for your comment Sanwarmal

  47. Nitin says:

    Good piece of information Manish and well said.

    1. Thanks for your comment Nitin

  48. Suman says:

    Sometime it comes to my mind that should I stop my SIP or stop buying stock in this downward market though I know that this is the time for more investment. Now I have made up my mind that no selling of stock and no stopping of sip after reading your beautiful article.

    1. Glad to know that Suman ..

  49. Pranesh says:

    Hi Manish,
    Great timely article thanks a ton.
    You mentioned 3 chapter of 1 book can you please mention book name

    1. Hi Pranesh

      Its “16 personal finance principles every investor should know” – Here is the link https://bit.ly/personal-finance-book

  50. Manu says:

    Good stuff.

    One more point: Some people follow their heart instead of their heads when they get older and switch to something that may not be as well paying as their previous jobs. They will probably be happier after doing so, but they will certainly not see 7 crores or whatever the target was!

    1. Thanks for your comment Manu

  51. Mahesh says:

    Hi Manish,
    One more Great piece.
    I read number of articals on finance,but still yours is always unique one.
    Thanks for showing us reality.

    1. Glad to know that Mahesh ..

  52. INDER says:

    nice article manish sir .Thanks for making us think about our money and goals on timely bases. Say in case i start investing 40,000 per month will i be able to achieve the feat in 15 years possibly lying on 12 % return ?

    1. No Inder

      If you want to create the same wealth in 50% of the time, you will have to increase your investments by 700% .. means 1.4 lacs per month

  53. Bahubali says:

    I’ve following the strategy of buying more in Mutual Funds since I started SIPs ( since One Year ) after every major relative fall in the market, no matter at what levels indices point at!

    If one has planned to invest 1L in mutual funds in a year, I would suggest to invest 60K-70K through SIPs and remaining amount whenever there is relative low/dip in the market.

    Manish and Nandish, Your articles are always well timed and You keep the readers well informed with a good research behind it. Again a Great work.

    1. Glad to know that. I am sure if you have been following this strategy of yours from a long time, you would have made good gains till date 🙂

      Manish

  54. Sushanta says:

    Very timely article as now market is bearish and people are loosing vision of long term savings.This will surely keep the motivation back on running the SIPs. Could you please advice on what to do with the money generated by a fund on which we have stopped SIPs due to non performance of that fund. I understand that we should not withdraw the money. But what should we do?? Keeping the money in the same fund will keep loosing more.

    1. Anjan says:

      I would like a clear answer to this as well. Moving money from one fund to another attracts exit load and hence can be a costly proposition and yet its not a good idea to stick to an under performing fund. So how to move the funds and how to decide when its a good time to quit investing in a fund?

      1. Generally exit load is there only till first 6 months or 1 yr. I think if we carefully choose a fund in the start itself, we will be reevaluating it only after 12 months?

    2. If a fund is really not performing well , in that case, you can always switch the money to another fund of the same fund house (HDFC -> HDFC) . Or just sell off and take the money back in your account and then reinvest it in some other fund

      Manish

      1. Sushanta says:

        Thank you Manish…

  55. Vishnumoorthy says:

    Much Needed article at the current market situation. Honestly my Life style is revised after reading your books and workshop.

    1. Thanks for sharing that Vishnumoorthy

  56. Vimal says:

    Nice article and very beautifully summerized. Just to compliment your arcticle adding a quote I read sometime ago”The stock market is the probably the only place where when things go on Sale, the customers run out of the store !!”

    1. Nice quote Vimal 🙂 . Thanks for sharing that !

  57. Kumar says:

    Looking for your comments on a couple of ideas I practice, Manish Ji:

    1. I prefer a SIP+STP to a SIP because liquid funds slightly outperform savings bank. However, minimum transferable amount for most liquid funds is 10k at one go, so for lesser amounts, SIP is the only option. In my case it is Paycheck >> SB a/c >> SIP to Liquid Fund >> STP to Diversified Equity. In my case the amount is 10k/month.

    2. Remember Alice Schroeder revealing the crisis+courage+cash combo of Buffet? Since last 6 months, I am trying to build up a ‘Market Crash Corpus’, allocated 50-50 in Debt MF and FDs. Note:
    * This is separate from my own Emergency Fund. If there is a huge crisis someday, I will use that corpus in a phased manner.
    * Debt MF / FD may not earn good returns but my focus is on liquidity. I want my money in T+2/3 days to cash in on the crisis.
    * I am yet to figure out the ideal size of the fund. I would like to figure out a rough ceiling like x% of net worth or y% of monthly investment amount.

    Have I taken the right path? Your opinions, please!

    1. Hi Kumar

      Truly speaking there are various ways to living a financial life and if you have taken some route with proper research Its great ! .

      I personally like a very simple approach and hence I dont think I will be able to comment on your style.

      Manish

  58. FANofJagoInvestor says:

    Manishbhai Salute you Sir !
    Really you are doing great work .
    Sharing Awareness on financial matters is toughest job in world.
    Writing article on same subject regularly in different way so that people invest for long term. Hatsoff you Sir!
    Thanks for awaring us.

    1. Glad to know that FANofJagoInvestor ..

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