Equity exposure essential for wealth creation. Here’s how

Equity exposure essential for wealth creation. Here’s how

Assuming that you must have started saving and investing in your 20s, you probably must be in a better financial position in your 30s. In 30s, you become better at managing finances. But, if you didn’t start early, it’s never too late.

Being in 30s feels more adult, jobs become stable and one starts earning more. In 30s, you have specific goals in mind and the ability to save and invest also. It’s always beneficial to start investing early to allow compounding of the returns to create wealth.

As per experts, investment plan should be made keeping in mind the long-term and short-term goals. The allocation should also include liquid assets (either liquid funds or short-term funds) so that there is recourse in case of any emergency.

Article4_Image(Source: NSE)

For long-term creation of wealth, it is essential to have sufficient exposure to equity as it beats all other asset classes over time. As mentioned earlier, the equity allocation can be done using the ‘100 minus age’ principle and also keeping in mind bulky investments/goals.

“Normally, you can use the ‘100 minus age’ principle to decide on the proportion of debt/equity. As per this principle, you can subtract your age from 100, which would give you a rough idea about the level of equity exposure that your portfolio needs. For example, at the age of 35, the equity allocation would work out to 65% of investible surplus,” said Gaurav Dua, Head of Research, Sharekhan.

Dua said the investment in equity should be done gradually through a systematic investment plan, which would help mitigate the volatility risk.

“Equity markets depend a lot on corporate earnings growth in the long term. Corporate earnings in a growing economy like India normally expand at a high double-digit rate. This makes equity an attractive asset class for long-term investors. You should invest in equity in a phased and gradual manner.”
– Gaurav Dua

Thus, a disciplined investment plan and patience are the keys to a successful equity investment plan.