Cambridge Dictionary defines Wealth as following:
“a large amount of money or valuable possessions that someone has”
Wealth for a person is the total sum or cumulative value of anything and everything a person owns.
It could be money in the form of cash, property, gold, equity shares, govt. bonds, corporate bonds, land, pension schemes, public provident fund, employee provident fund, term insurance, ULIPs, and many more such financial instruments or asset types.
It takes years to create, generate and grow wealth. In yesteryears when avenues were limited to retail investors, they used to park their money in traditional asset types such as real estate, gold and govt. backed debt instruments. These asset types provided a guaranteed appreciation and return on investment because real estate and gold always appreciates in value. Simple demand and supply economics and scarcer the resource, more will be the demand, higher will be the price and appreciation.
In today’s time (the 2000s) especially post-COVID, the average retail investor is more informed. There are numerous outlets of information ready to provide relevant information to the investors. However, this has also led to creation of misinformation and misconceptions about multiple financial instruments and asset types that mislead investors.
Coming back to the question at hand: What is Wealth?
We at Chilli Wealth define wealth as the net value of all your assets and liabilities.
The idea of wealth should not be limited to mere salary or value of money saved in your bank account or in your wallet.
Wealth takes years to create, generate and grow!
Idea of wealth should not be limited to one generation. It is continuous. It is the responsibility of each generation of a family to protect, contribute and grow the wealth of a family. Thinking of wealth in a silo of individual will lead to slow and time taking process.
Wealth should always be viewed as total net value of assets categorised in three buckets:
- Liquid – visible, easy to access, short to medium term holding period e.g. cash in bank, equity shares or mutual funds investments
- Semi-Liquid – visible, easy to access, medium to long-term holding period, e.g. gold, debt bonds
- Fixed – visible, locked away, long-term holding period e.g. real estate, insurance, PPF, pension
One should focus on having a balanced portfolio of all these asset types. The balanced portfolio helps in achieving financial milestones or goals.
At each age or life stage, one should have a balanced portfolio and patience to hold that portfolio and see it grow to achieve the financial goals.
There are other ways too to create wealth in short span of time.
Start a company, work hard to make it a profitable business with a very high valuation, take an exit by selling the company or simply install a CEO and become a board member and enjoy perks of dividends and appreciation of the value of the company.
But this happens with only a handful of people. Not everyone can start and sustain a business of high value. Majority of the people are risk averse. They want the surety of salary, pension, money in bank to sustain their daily lives
So, for majority of the people would like to generate wealth through passive means. They earn a salary and they split that salary generally into three buckets: monthly expenditure, life savings and emergency funds.
The life savings bucket when grown with attention, care and investing in ‘right’ financial instruments and assets will lead to sustained wealth creation.
To conclude wealth is a total net sum value of all assets and liabilities of an individual. To create, generate and grow wealth takes time, judicious investment in ‘right’ assets and instruments and holding that investment to allow it to grow to required target value.
We recommend to read this book: The Compound Effect. Click on the link to purchase the book on Amazon. Click here or the image below