Want to become rich? Here is what should be your top focus, and it's not returns
Investing requires patience, disciplined investments, and it requires investors to keep calm when the market fluctuates.
Bill Gates — the American business magnate — once said that 'being born poor is not one's mistake' but 'dying as a poor is definitely one's mistake.' What the inventor, author and philanthropist want to convey here is simple and straight — your wit and grit are enough to make you rich. So, you should be goal-sensitive while investing and must check which option would take you to your investment goals. While investing, an investor needs to remember his or her kindergarten days story, 'The Rabbit and the Tortoise', which conveys a lesson that being the fastest might not get you where you want to be or what you want.
Pointing towards the importance of one's goal in investment Amar Pandit, CFA & Founder at Happyness Factory said, "One's goal of investing is to gradually build wealth over a period that will help us to fulfill our future financial goals. Investing takes a long-term approach by buying and holding on to investments and is not a way to make quick cash." He said that trading uses the short-term strategies to maximise their returns over a short span of time and use the market fluctuations to their advantage. In a trader’s life, there are many short term investing instances. Some of those instances are the high return and some may be in loss or low returns. In order to succeed in the long run, short term investor has to be succeeded in all the short term instances, which is not possible practically for everyone. Most of the time, the decisions tend to go wrong 4-5 times, out of total 10 times. As a result, long term returns generated by short term investors tend to be lesser than long term investor. However, this is not realised in the short run as short term investors tend to focus only on the success stories. Hence, every short term investors go through the same pain of the short term cycle.
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Batting for preferring long-term investment plans over short-term, whether it's direct equity, equity mutual funds or debt-mutual funds Amar Pandit said, "Investing requires patience, disciplined investments, and it requires investors to keep calm when the market fluctuates. But this isn’t an easy thing to do and it becomes doubly hard in the face of the constant ‘noise’ and mindless bombardment from financial media and other pundits."
The focus of long-term investment, which is also called 'Slow and Steady Capital' is to avoid any large losses, rather than chasing the next big investment opportunity. There is a difference between making a killing and getting killed and it needs to be understood to make successful investments in the long run. The long-term investment ensures that you can have a life, that you can enjoy your present. If you accept the principle of ‘slow and steady wins the race’ and base your investment decisions upon this principle, it is possible to tune out the market noises and invest successfully.
Elaborating upon the importance of patience in investment returns the Happyness Factory founder said, "We all know that Rome was not built in a day. However, when it comes to investing, everyone wants to build Rome in one day, or a few days, or a few years. But that’s just not possible. The only real way for any human being to create wealth is to utilize the power of compounding to his/her advantage. If you see the graph, in the first 15-20 years you do not even notice the impact of compounding, but then it shoots up like a rocket. Most people fall into the trap of bypassing the compounding curve by looking for tips, shortcuts (which stock should I buy), Ponzi schemes (unknowingly of course), and end up making costly financial mistakes. But smart investors take it easy and let time create money for them."
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