How to be a millionaire in 10 years?

Time is Money.
By that yardstick, the more time you have, the more wealth you will be able to build.
A lot of emphasis is even placed on ‘timing’.
Timing the market (and getting it right) is considered an excellent way to get rich quick.

 

But ‘time’ and ‘timing’ can do very different things to your wealth.

 

If you have the resources (time, energy, skills) to pick the right stocks at the right time, and do this right, every time, you will certainly make a ton of money. But this is a very difficult thing to do. And the best investors in the world today rely more on ‘time’ than on ‘timing’.
As Warren Buffet himself said, ‘Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years’.

 

For those of us who are salaried individuals, we have the advantage of being able to buy regularly. That’s what the Systematic Investment Plan option is here for.

 

A Systematic Investment Plan (SIP) is a tool that is used to regularly invest a fixed amount into a specified asset / investment instrument, for a defined period of time.
This enables investors to slowly and regularly build wealth over the years.

 

The key to building wealth is to start early, even if the start is small. Regular investments, no matter how small, will grow and compound as the years pass. The numbers prove it.

 

Advantages of Systematic Investing

 

An SIP offers you many advantages, but two of the prime advantages are as follows:

 

1. Average your costs
   
   This is essentially something that eliminates the need for you to time your investments. This works on the principal that you buy more when the price is low, and less when the price is high. Think of your SIP. At high prices, your fixed amount buys you less units, while at low prices, your fixed amount buys more units. This is called Rupee Cost Averaging.
   An SIP works best in a falling market, but any volatility in market conditions is a good time for your SIP.


2. Start Small and Build Up, using the Power of Compounding
   
   With an SIP, you can start investing as low as Rs. 500 per month and still buy top bluechip stocks thanks to exposure through your mutual fund scheme. You can also invest these small amounts regularly, increasing them over time, and build up a tide sum for yourself thanks to the power of compounding. The power of compounding simply means that any interest (or in the case of equity, return) that you earn on an investment, will also earn you interest.

 

Consider Sita, who started investing at the age of 23. She started with a sum of Rs. 5,000 per month, and invests regularly the same amount each month until her age of 50 years.
With a beginning of as low as Rs. 5,000 per month, she accumulates close to Rs. 1.21 crore in by the time she is 50 years old.

 

Now consider her friend, Gita. Gita starts investing at the age of 30, 7 years after Sita.
She starts with Rs. 10,000 per month, doubling Sita’s investment, and stops investing at the age of 50. By the time she is 50, Gita accumulates Rs. 99 lakhs.

 

This shows that even if you start with a comparatively lower amount, as long as you start early, through an SIP, you’ll build wealth with a little help from the power of compounding.

 

When’s a good time to start an SIP?

 

Right now is an excellent time.
If markets are showing any signs of volatility, your SIP will reap you some excellent benefits. As was seen by those investors who continued their SIPs during the lows of 2008, and didn’t panic, a choppy market gives you an excellent time to buy in.

 

That being said, once you start a SIP, keep it going through rising and falling markets.
Pick the right mutual funds, invest for long periods, and watch your wealth grow over the years.

Add Comments

Comments
haricnair@gmail.com Feb 01, 2011 Yes there are negatives too for SIP. Long horizontal moves, increasing of SIP amount, not getting good down moves will become -ves for SIP.
csshaastry@gmail.com Jan 25, 2011 As rightly pointed out by the author, SIP is the best way to accumulate wealth over the longer run. It would be nice to educate investors on the following: 1) Allocation for different type of funds - large, mid-cap, bluechip or thematic. 2) Ways to invest in SIPs - demat account or offline brokers.
melvinjo123@gmail.com Jan 27, 2011 Anybody starting an SIP for an affordable amount, immediately after joining for the first job and keeps increasing it slowly, as per ther salary increase will create necessary fund for all his requirements in life. His EPF will act as a debt component, to ensure asset allocation. At the most, he can think of a PPF also to diversify. Starting early ,selecting the right funds and reviewing evey year is the need of the hour.
pats728@yahoo.com Jan 29, 2011 Everybody targeting to grab the poor salaried persons money by yelling SIP SIP SIP. The truth is all of them, you believe it or not, does save small amounts. But I would suggest them NOT to invest in Mutual Funds. Instead, open a Demat Account, Identify few large-caps from each Industry Verticals, Keep buying small quantities (with available savings) - whenever the market crash (Key: Sensex go -10% within 2 months). Until then, keep your small savings in the banks to earn some interest.
ksmehta70@hotmail.com Mar 01, 2011 The most important factor is selection of fund which will give a steady return over a period of time.Taking a SIP and investing for long term without reviewing returns does not seem to be a good strategy. Ivest through SIP at all times but try to take out part of principle when in profit .One must achieve a state when the priciple is out and one enjoys gains on profits.There are enough reccomendations butnothing definite so the selection of a fund is still a chance.

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