A reader writes,” I am 28 years of age and single and plan to remain so. I have no financial goals and only wish to create wealth. I have an aggressive risk appetite. How should I invest? Can you write an article about this?”
Is it possible for a person to have no financial goals? Everyone, when young, needs an income source. This is typically due to active employment/entrepreneurship, where we spend time and effort.
After a certain point in life, we would like to stop living paycheck to paycheck; work because we want to and not because we need to and draw an income from our investments. This is, of course, known as retirement planning.
Retirement planning is a goal for everyone. Repeat, everyone, whether they wish to consider it a goal or not! What is the point of creating wealth over a lifetime if you don’t have a proper plan to withdraw from it? Even those born with a silver spoon need a plan, or the silverware will turn black.
So when someone says they want to “create wealth”, they usually mean they want to “create wealth for retirement”. So how do we go about doing this?
We have just published a formal guide: How to plan for retirement in nine steps – a beginner’s guide. We will now mention some thumb rules.
Creating wealth for retirement: thumb rules
- Asset allocation is crucial. Do not go overboard on equity just because your retirement is far away and you have no other long term commitments. Opt for 50% to 70% equity, with the rest in fixed income. Fixed income is the foundation of wealth.
- invest as much as you can, as often as possible, without worrying about market levels or conditions. Do not waste time trading. Improving skills and income pays a lot more and is immensely satisfying.
- The wealth we create depends on the capital we invest, how balanced our portfolio handles market ups and downs and how disciplined we are in sticking to the plan. It does not depend on the percentage of small caps or crypto we hold. Stay away from all fancy themes.
Who is an aggressive investor?
Many believe that an aggressive investor takes a higher risk. This is silly.
You cannot compensate for your lack of income by seeking more returns.
When you take on more risk, you are not guaranteed more returns. You are guaranteed more risk. An aggressive investor increases investment as much as possible and is not someone who takes on more risk and rides on luck. See: Will I get more returns if I take more risks? Higher risk = higher returns?
So our recommendation to “build wealth” (for retirement) is to invest as much as possible in a balanced portfolio. Once this is set in motion, the reader should learn more about systematic risk management and post-retirement withdrawal strategies. For example, I am 30 and wish to retire by 50; how should I plan my investments?
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Dr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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