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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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No short cuts

Posted by Muthu on March 2, 2014

Someone asked me recently a faster way to become rich. He wanted to retire by thirty.

One can become rich young by inheritance, ESOP, marrying someone rich, by getting lucky through a single stock which becomes some 20 or 30 bagger in few years and so on. These are more of exception than a rule.

Otherwise one needs not less than 2 decades of working life to become rich. Becoming rich is a function of how much you save and how long you are able to save.

As Rob Arnott said, no strategy can make up for inadequate savings or premature retirement.

From my interactions, I find people who became wealthier by their early forties save not less than 50% of their income (even more in many cases) regularly and invest the same productively.

If someone beginning a career focus on saving as much as possible and doing it for not less than 2 decades, in all likelihood he would become rich.

There is no point in chasing hot stocks or funds. As far as funds are concerned, many focus on recent performances and keep chasing them. Any fund or fund manager goes through the cycle of performance and under performance. Studies have shown that money flows in after good performance and money flows out after bad performance. It is the worst way to time the fund and that’s why investors earn significantly less than what the fund earns.

An advisor needs to help you to manage your emotions better. If he pampers to your emotions just to be in your good books or make more money by churning, you would be better of managing the portfolio yourself. You don’t need an advisor. An advisor should make you less impulsive and help you focus long term on your financial goals. I agree with what Nick Murray said, you hire an advisor, not to manage your money, but manage yourself.

If you want to get rich faster, you need to save more and invest regularly. There is no short cut. A bull market can accelerate the process. Let us hope for one but focus more on what we can control.

My answer to that young professional has resulted in this small piece. Thanks to him for the same:-)

Happy Monday blues:-)

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