I Dream: Of becoming a millionaire by 30!

We all have dreams. And we all want to live our dreams. Beginning today, we start a weekly series on how to bring our dreams to reality.

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If you want to make your dreams come true, the first thing you have to do is wake up. J M Power

Well said, indeed!

Everyone in this world has dreams and aspirations. One such dream is to be a millionaire by 30.

This can be realised only if you work hard towards it. Here are few cues on how best you can make this dream a reality.

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Reader invite

Do you dream to become a millionaire at a young age? Of course, you do. But is it just a dream or do you have a plan of action to achieve your goal?

How do you plan to do it? Tell us.

Send us a mail at getahead@rediff.co.in with the subject line 'I dream to become a millionaire at a young age' and we will publish the best ones right here on Rediff.com.

Let's be fair, now if you want to be millionaire at 30 years, how many working years would you have? About 8 years, given that you would prefer to hold a post-graduation so that you start off with a swanky five-digit yearly income! For some late bloomers, this could be as low as 5 years to hit that golden number.

Given this limited time there is no way you can sit on cash in your savings bank account and build this number.

Investing and saving are two different words with starkly different meanings -- if you do not invest your money, you are simply letting your money idle it's time away.

From a salaried person's perspective, it is best to set aside a fixed amount of money towards investing; this could range from 30 per cent to 45 per cent of your income, especially during the initial working years when responsibilities are less. You can gradually lower this amount as your responsibilities increase.

These are the two most crucial aspects of investing; in fact it could be a key game changer. Everything in this world requires time to grow and so does your investment! The adjacent table illustrating various timelines and return scenarios, give a fair idea of how things could materialise based on your investment decision.

Of course, there is one more key thing that matters in the whole act and that is the amount you deploy as investment.

All those numbers which will make you a millionaire are highlighted, more time for your investments to let the magic of compounding work itself out, higher returns and investible surplus will take you closer to your dream.

Staying too conservative will only impact the corpus that you would build, having a heady mix of debt and equity is the best way to design the portfolio.

One should ideally aim for 8 per cent to 12 per cent returns on your portfolio. Typically, net returns (post-tax) should be in excess of average inflation (which is approximately 6 per cent for a developing nation like India).

In the whole scheme of things, the most lucrative option is to get maximum returns, but there is a simple rule in investments: Higher the returns, higher the risk!

Risk is the possibility of incurring a loss or misfortune. Within the investment world there are various instruments with varying levels of risks. The table alongside broadly categorises the risk profile of investments.

Careful evaluation of risk is very important, considering that when you are young, you have the adrenaline rush and perceive yourself to have a high-risk appetite.

This would fall flat when things turn ugly. There are numerous individuals who deploy all their money into equities which are a high-risk investment. The key to make money here is to stay patient, however, as they say, 'Patience is a virtue' and more so, found in the elderly.

When the market downturn happens, your investments may tank and if you are not able to stomach this, then this is simply not your cup of tea!

Why would one need to focus on asset allocation?' is the first question that may pop into your head. Inverse proportion is a concept that we studied in math, way back in our good old school days. Precisely the same concept will come to your rescue when you invest.

A well-diversified portfolio will ensure that you optimise on your returns at adjudged risk levels. The graph alongside depicts the movement of various asset classes: We have used mutual funds to depict the same; the same fund house (which has a long standing performance record) is used across asset classes ranging from debt, equity and gold.

Benchmark Index (Nifty) is used to merely depict the market movement.

Bonds (debt) provide the much-needed consistency to the portfolio; Gold inherently moves in the opposite direction of equities (albeit the fact that it fails to do so occasionally), this could act as a hedge.

A well-diversified portfolio would ensure that there is no drastic movement in your portfolio. But then again, make sure that you do not over-diversify. For an investment like Rs 5,000, it is best to stick to as few avenues as possible.

These cues are not exhaustive, only experience will enable you to get the best out of your portfolio! So, it's time you woke up and gave wings to your dream of becoming a millionaire by the time you turn 30.

Summary:

• Invest, don't merely save!
• Start early, invest consistently
• Time and returns are key aspects which will determine the corpus you build
• Evaluate your risk and de-risk appropriately
• Diversify and rule the key to optimise your returns

Reader invite

Do you dream to become a millionaire at a young age? Of course, you do. But is it just a dream or do you have a plan of action to achieve your goal?

How do you plan to do it? Tell us.

Send us a mail at getahead@rediff.co.in with the subject line 'I dream to become a millionaire at a young age' and we will publish the best ones right here on Rediff.com.