Wednesday, May 11, 2016

Do you Need to be Millionaire to Become a Billionaire?

Need not be a Millionaire to Be a Billionaire through share market investment

Many people believe that in order to become a billionaire through share market investment, one needs to be a millionaire in the first place. Is this belief valid?

Warren Buffett literally started from the scratch and has risen to what he is today through a long journey of prudent stock market investments.

Anyone, literally anyone - from a pizza delivery boy to gas station attendant, with humble means, can become rich and build lasting wealth, if one can start young.

Really, there are only two essential ingredients for wealth creation - discipline and a long timeframe - 20 to 30 years.

First lets understand what discipline means It means financial discipline comprising two elements:

  1. Don't blow your hard earned salary on luxuries - branded clothes, expensive eating out, bars, gifts and girlfriends!  Keep your needs simple.
  2. The moment you receive your pay check, invest first and spend what is left.  You invest first and learn to live within the balance and not the other way round - spend first, and save what remains. 
Second, and the hardest part, is simply let the investment be.  You have to give your investment a chance to multiply.  We have to let the miracle of compounding to work.  Why I say this is the hardest part is human nature.  Perhaps having evolved from the proverbial monkeys, human mind can not be quiet even for a moment.  If the stock market falls, immediately we get nervous and think of selling the investment, even at a loss.  If the market rises, again we think of booking the profit.  The thinking goes, "who knows, if I don't sell now, I may miss the opportunity for ever".  Thus human mind does not let the investment to grow, resulting in premature harvesting of the crop.

How Systematic Investments Can Multiply

I present here what any humble wage earner can create significant wealth by starting at the age of 20, over fifty years, with a humble systematic monthly investment of Rs.1000 (US$ 15).  I have assumed longterm stock market returns at 15% per annum (based on Indian market performance) and annual inflation at 10% per annum.
Need not be a Millionaire to Be a Billionaire through share market investment

We can see that this small regular investment grows into a whopping Rs.12.25 crores (US$ 1.80 million) net wealth over 50 years.

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The answer to the doubt, "Do you Need to be Billionaire to Become a Billionaire?", is an emphatic NO! Even a ordinary wage earner, who starts early and consistently invests through a systematic investment plan and keeps the investments untouched for long periods of time can create significant wealth.