Do you Need to be Millionaire to Become a Billionaire?

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.

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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Conclusion

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.

Pamper Yourself or Invest in Stocks?

An important question that haunts many a white-collared,  well-to-do, corporate executives is, "Pamper Yourself or Invest?". Everything is out there in the universe - Armani suits, TAG Heuer watches, luxury cruises, stocks, stock exchanges, share prices, stock news. Some are dry and boring like the stock news while others are alluring - the choice is solely ours!

Opportunities to Splurge

A leading economic news paper published a titbit that an airline has launched the world's most expensive, one-way, fare of US$ 38,000/- between New York and Mumbai.  The offering comprises of a bedroom, lounge & shower room.  The cabin comes with a double bed with designer linen, spacious shower, a 32 inch flat screen TV, double dining table, etc.  In comparison an economy class ticket on the same sector will cost under US$ 500.

This is a perfect example of the dilemma, "Pamper Yourself or Invest in Stocks?"

A sane and calm introspection will certainly help us realise that the aspirational offering of the airline is not only 76 times more expensive - with the money spent on a few hours of luxury one can create a significant value investment portfolio, that has the potential to grow into nearly US$ eight millions (the future value of investment calculated over a period 37 years, after inflation, based on the historical returns of 15% per annum yielded by Indian stock markets).

I see many bright youngsters  earning handsome salaries in software, retail, e-commerce and other such well paying sectors, and splurging on expensive clothes, eating out, discotheques, etc.

The consequences of buying unnecessary things could prove to be too costly in life.

Wisdom of Investing

On the contrary Warren Buffett, a successful value investor, even after figuring on the top three richest list, leads a frugal lifestyle.  He self drives an old car, flies economy class.  In short, he has mastered control over the urge to splurge.

Well, actually it is not a great sacrifice!  Those who realise the potential of returned generated by stock market today, and the power of compounding, will never spend on pampering themselves and certainly think many times before spending even a dollar.

When you realise that you can buy a handful of shares of a blue chip company for the price of a family meal in a neighbourhood restaurant, or no less than 100 shares of the same company, for the price of a family holiday, which can give you tax free dividend income and capital appreciation for the next hundred years, the choice becomes quite obvious and simple.

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Conclusion

I am not suggesting that one should not spend and enjoy life, but only emphasising that one should try to keep ones needs simple, control the urge to splurge and wisely invest in stocks and mutual funds to earn financial freedom and create significant wealth. It is beneficial to read stock news, learn about stocks, stock exchange, share prices and mutual funds.