Investment Objectives & Advice

Anyone can be a Millionaire

“If you think you can do a thing or think you can not do a thing, you are right.” – Henry Ford

When I first spoke about this to my friend, it ended up being an argument. I don’t want that again so let me elaborate on this. When I say anyone can be a millionaire, I do not mean that everyone will be a millionaire (Though it might happen when the value of currency goes down drastically, and you can be a zillionaire in Zimbabwe’s currency or billionaires in Venezuelan Bolivar.) but what I mean is that if someone put an effort and is determined to be a millionaire, he will be a millionaire one day and probably before many of his peers.

Over the last few years, one of the regular report I read, has been the global wealth report by Credit Suisse. Even though it was published in Late 2018, I got the chance to read it during my recent long-haul flight. As every year, I am startled by the disparity between the rich and people at the bottom of the pyramid. Let’s check some facts from the report on global wealth:

  1. Total wealth of Households is $317trillion, roughly 4 times of the worlds GDP $80 Tn
  2. 45% of the wealth is with <1% of the working population of 5bn, who have >$1mm net-worth.

Isn’t it insane? That <1% of the population controls so much wealth. This fact becomes more disturbing when I see for our own Country.

  1. Roughly 90% of the people have net-worth of <$10k (INR 7.2lacs), while in China there are 33% people in <$10k category.

This is so disturbing that I felt like doing something about it and as my father always say, Charity begins at home. Hence here is my take from the personal finance perspective:

Observation 1: Growth of the debt has been 13.3% vs 4.3% growth of non-financial assets and -2.5% of financial assets

It is satisfying to jump on debts, credit cards and EMI schemes to fund your aspirations like buying the car you need or the TV you wanted or the foreign vacation you dreamed off, though in long run it always hurts. One need to be very thoughtful about the debts he is binging up on. Are you using debts to fund your future liabilities or consumption only or you are using these debts to fund your assets which will bring you cash flow and increase your net-worth?

Half of the people think that house is an asset and buy it with humongous loan and keep repaying it for half of their working life. Is it really an asset? Have you checked the Yield? Does it generate a cash-flow for you?

Observation 2: Financial assets still form only 20% of an individual’s net-worth vs 75% in US or 45% in China.

We as Indian always love to buy real-estate, plots or gold, without thinking the value we will get out of those investments. It is more for prestige than a financial sense. The person who become rich, when we buy our expensive low-yielding houses, are real estate companies, agents or Banks but not us. Though I am hopeful this will slowly change as our new generation is more mindful of large ticket consumptions like this.

So, what should we do? Be aware and educate yourself on finance, there is no excuse for being financially illiterate. One simple tracking or plan can put you on right track, just be aware of your return on assets (RoA). Assets are all your possessions, Home, Car, The MF investment you have made, The traditional insurance policy you took, the shares you bought, The plot you own or the deposits you had made and minus the Loans you have currently (Home loan/ personal loan, CC loan, education loan etc). If you do not add any new penny on all these assets, will it grow by 7-8% after a year to match inflation? If not, you need to change your selection of assets. In my experience of doing this exercise, 95% people are in <5% YoY returns (Small sample of 60 people so might not be representative). Probably it is true that >90% people have a net-worth of <$10k in India. Once you can achieve >8% RoA, you are on the right track to be a Millionaire.

Don’t wait, start thinking & Happy Investing!

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