You slog to make money for yourself. But a day is limited to 24 hours and there is only so much work that can be accomplished during the waking hours. And there are countless ploys of snatching your hard-earned income, ranging from taxation and inflation to a consumeristic culture. But what if I tell you that you can make money when taking a nap or enjoying a vacation? Money well-deployed will be busy generating wealth and beefing up your net worth, when you are nowhere in the picture. Welcome to a new world of financial independence.
According to Ankur Choudhary, co- founder & CIO, Goalwise.com, the first step in making money work for you is to save and the best way to save is to save first and spend later. The second step is to invest your savings so that they can earn interest or profits. Some of the investment avenues are FD, real estate, mutual funds and stocks. FDs and Mutual Funds are suitable for investing small amounts of money on a regular basis, while PPF, ELSS, etc. help in saving taxes under section 80(C).
Here are some hacks to make money work for you
A successful investor is a systematic investor. Behavioral Finance has shown that investors are generally irrational, emotional and rash when it comes to making investment decisions. Putting investing on automated mode seems to be the only way out of this conundrum. With an automated Systematic Investment Plan (SIP), a person can allocate a fixed amount of money each month to a financial instrument of choice, thereby taking away the emotion from investing. SIP also has the added advantages of allowing the investors to start small and insulating them against market fluctuations.
Harsh Jain Co-founder and COO Groww, said the best way to make money work for you is to invest in avenues that fetch inflating beating returns such as equity investing. Equities have the unmatched potential to generate wealth in the long run. For a time horizon say 15 years, if you invest in a diversified equity portfolio by starting a SIP of Rs 20,000, at 10% expected annual returns, your planned investment amount of 36 Lakhs can help you amass a corpus of approximately 80 Lakhs, which means your money earned a profit of about 44 Lakhs for you.
Harness Power of Compounding
Albert Einstein, one of the greatest scientists of all times, has said that the Power of compounding was the eighth wonder of the world. Compounding grows wealth exponentially by adding the profit earned on a stock or a mutual fund to the principal amount and then re-investing the entire money. Many stocks have delivered mind-boggling returns to investors willing to allow 'time in the market' rather than attempt to time the market.
Go for Value Investing
Benjamin Graham is known as the father of value investing for his path-breaking book, 'The Intelligent Investor.' Berkshire Hathaway CEO and legendary investor Warren Buffett described it as the best book on investing ever written. Graham's investment philosophy, as outlined in the book, consisted in making investment decisions based on the intrinsic value of a stock. If a stock's intrinsic value, as determined by its assets, earnings and dividend payouts, was more than its current market price, the stock was a screaming buy for Graham. So value investors are basically bargain hunters who search for undervalued stocks, or valuable stocks that are yet to be discovered by other market participants. Moreover, they invest in businesses rather than stocks per se, and in businesses that they understand. Warren Buffet and Rakesh Jhunjhunwala have built fortunes by taking the value investing approach.
Have a Diversified Approach
'Do not put all your eggs in one basket' is a sound and timeless piece of investment advice. An investment portfolio should consist of diverse financial instruments such as stocks, bonds and other investments, taking into consideration immediate and long-term investment goals.
High Dividend Stocks
A portfolio of high-dividend stocks can bring in regular passive income and at a higher annualized rate of interest in today's low-interest rate environment. In the Indian context, some of the PSU stocks have a history of proving high dividends. And as high-dividend stocks are ultimately stocks, the potential for capital appreciation still remains.
Invest in Index Funds
Stock investing may not be every one's cup of tea, given the daily market gyrations and the real possibility of wealth erosion. Enter index funds. An index fund is basically a mutual fund that imitates the portfolio of an index. For example, the portfolio of an index fund that tracks a benchmark such as Nifty would have its 50 constituent stocks in different proportions. The returns mimic the underlying index, thereby providing for diversification in asset allocation, minimizing the risks and making money in the long run.
The adage 'Money doesn't grow on trees' may not be relevant, at least in some situations. Money can be made to generate more cash, depending on one's financial approach, risk appetite and time horizon.