Investments:
Another factor which determines if you are rich is the extent and nature of the investments you’ve made. While making investments is inherently a good thing and can boost your financial strength, the type of investments and the investment strategy plays an important role in determining if you really are rich.
Take the example of Ram and Shyam, both of whom had a corpus of Rs. 1 crore to invest on retirement. Ram invested the amount in land as he thought that it was a good opportunity.
Shyam invested the amount partly in fixed deposits and partly in equity mutual funds. While both Ram and Shyam own investments and have wealth, who is the richer one?
Ram or Shyam?
Ram has invested the amount in an illiquid asset and as a result, the money is blocked. He does not get a regular income from his investment. Also, it may not always be easy to sell land in case he needs funds. The land value will appreciate over time. However, the level of appreciation depends on a variety of factors including the locations potential.
Shyam’s investment in fixed deposits and mutual funds is highly liquid compared to Ram’s investment in land. Fixed deposits and mutual funds can be sold at short notice and without much of a hassle. If the investment in fixed deposit is made with an option of monthly or quarterly payout of interest, there is a regular flow of income from the investment.
Similarly, if the investment in mutual funds is made with a dividend payout option, this also yields a regular income. There is a capital appreciation as well on equity mutual funds, although the extent of appreciation depends on market conditions.
Then who is richer?
A comparative analysis of the investments indicate that Shyam can call himself richer as his investments are liquid and also yield a regular income. Land and property are, of course, considered ideal and must-have investments for the average Indian. However, investing in liquid assets which give you returns is much more suitable for an individual from all points of view.
Conclusion: You can’t really become rich simply by earning a higher income or by investing mindlessly. It is more important to cut back on lifestyle expenses and invest in the right nature of investments. These can actually make you Richie Rich.
YOU MAY ALSO WANT TO: Find out exactly how rich your investments make you – SIP Calculator