Let us again look at a fundamental and common sense way of building wealth, something which holds the key to powering your NetWorth.
It is not about the next multi-bagger stock, the hottest IPO, the best mutual fund or ETF, nor gold, oil or silver.
Yet, it is not a secret. As I call it, it is the no secret couple that can get your networth to soar.
See this chart.
As you see in the chart, the couple is that of discipline and patience – no secret as I said.
One thing is absolutely clear – investing for wealth building is at least a 30 year process. Broadly, there are 3 phases.
Phase 1 – The Initial years – Warming up the engine
It is called starting the engines of the plane and getting it to reach the run way.
They are really really painful. You don’t see any significant growth in your wealth. It is highly likely that you will run out of your patience and try and change course in your early years, because you want to see the graph run. Watch out and don’t quit!
Phase 2 – The Middle years – Speeding the runway
You now start to see some growth, much better than before. You take heart into the fact that you stayed the course, continued to invest as per your asset allocation. But you know what, the best is yet to come.
The airplane is now speeding on the runway and about to take off.
Phase 3 – The Final years – Take off
The most awesome period in an investor’s journey. That is where the power of compounding works in its full glory. Your networth shoots into the sky like a rocket. The years of discipline and patience finally are paid off.
The airplane has taken off and soared into the sky, cruising it at supersonic speed.
What to do with this chart?
If you have come to release the importance of this approach then you also realise how important this chart is?. Actually, you should download it, print and stick it on your investment file, save it as your desktop wallpaper or your mobile screen.
Basically, you need to revisit it again and again and remind yourself that your networth is a function of discipline and patience, more than anything else.
By the way
Not that it would matter a lot, but here is a real example. This is how Warren Buffett’s networth grew too.
See the chart below.
Between you and me: Which phase are you in? Do you feel the same rules would apply to a business too? Do share your thoughts and feedback in the comments.
I want to invest monthly 3000. What is your advice?
Do you mean to say you want to invest in Mutual Funds?
Simple and good post Vipin!
BTW, was just curious, how mutual fund returns are related to compounding? I could understand that PPF and all similar kind of investment instruments, we have something at the end of year, and interest gets added at the end of year, which then in total gets carry forwarded to next year and hence the compound interest benefit. Does this apply to mutual funds since in actual we are not getting any interest or similar kind of brawny points at the end of each year?
Thanks for the comment Umesh. Would you recall the reverse calculation method for mutual funds? We had exchanged emails about it. 🙂
Yes, I do 🙂
The intention behind posting the same question again was to help other dear readers who might be having same question but hesitating to put it.
Vipin,
these are class room ‘gyan’ which most of us know. Who doesn’t know regular exercise and moderate eating habits will make you healthier. How many people do it. And that too, (in your language), with discipline. These are gospel truths.
I would agree that everybody knows them. Sometimes it is just good to be reminded.