With this quest, veteran financial advisor Rajmohan Krishanan, whose firm Entrust Family Office handles funds over Rs 12,000 crore, went around India to find 35 such rich men and women whom he calls “wisely wealthy”. After long meetings with super-wealthy individuals like NR Narayana Murthy, Anand Mahindra, Uday Kotak and Ashish Dhawan, he collated their stories in the book ‘Wise Wealth’ which was published by Juggernaut recently.
Here are seven simple mantras, as stated in the book, that have helped Indian billionaires grow their wealth conservatively, ethically and transparently.
1) Become knowledgeable
Krishanan says wisely wealthy people are aware that the market is flush with badly designed or deceptive products that appear to give more returns. “In reality, they may have hidden costs and may be untenable. The worst ones lock capital for long periods of time and might force even vastly wealthy people to liquidate prized possessions to meet unexpected large expenses,” he writes in the book.
2) Long term thinking
Renowned investor Ashish Dhawan, whose own portfolio is widely tracked by retail investors, says the school of hard knocks teaches you that the churning of capital doesn’t do much good.
“You are better off locking in your money and not moving it around too much. Have a five or ten year horizon. Even if you can’t pick winning stocks, you will be a smart equity investor by just being invested long term in the market. Remember that asset allocation is sometimes much more important than security selection.
3) Value reputation more
The book finds that many ethically wealthy people have experienced a dent in their brand value when they ignorantly made investments unaligned with their ethics. “Somebody with a visibly vegan lifestyle might unwittingly invest in the meat industry. Somebody else with strong environmental stances might not even realize that they are invested in thermal energy companies. ….The wisely wealthy know that they are better off not earning that extra couple of million dollars.”
4) Stability trump’s growth
This mantra is about staying away from products designed to allure, but certain to fail. “Many quant products, certain derivative products, some investments linked to market movements, high risk debt funds and many other layered products fall in this category. It takes effort to track actual growth of investments made in these products,” it says.
Watching a stable investment portfolio is about as exciting as watching fingernails grow or paint dry. “It is not a newsworthy phenomenon. That is great news for the wisely wealthy and a sign that they are making the right bets.”
5) Real estate is for residency
Krishnan says real estate investments are not worth the effort as over a span of 30 years, the returns are not much more than that of a fixed deposit. Besides, real estate can be unpredictable, ill-liquid, litigious, difficult to maintain, emotionally charged, prone to wear and tear and might be deemed unsuitable for occupation by the next generation.
“So wisely wealthy people tend to invest in their dream homes and perhaps one or two vacation homes. Once they begin enjoying the emotional stability that comes from the feeling of belonging, they forget about this asset class altogether,” he says.
6) Leverage compounding
The above mantras facilitate another long-term concept called compounding, which becomes even more effective when one keeps adding to the investment corpus. “This can happen either by earning more or spending less. Both options make more wealth available for investments,” the money manager writes in the book.
7) Discipline is key
This is the overarching mantra which ties together all the connected principles above. Following those mantras requires discipline and one becomes disciplined by accepting with humility that the collective wisdom of markets and wealthy people is more reliable than one’s own fleeting instincts, says Krishnan.
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