How Long Does It Take in Investing To Build Wealth?

As people attempt to build wealth, there seems to be a lot of discussion about the topic. Many seedy businesses promote "get rich quick” programs to get people into making transactions that they might not otherwise consider. Investment has long been recognized as a powerful tool for wealth creation. How closely is wealth building tied to investing?

Value investors would argue that investing for the long-term is important, while day traders would say that market movements are best made in the moment. This is how wealth is created. If you invest for the long term, compounding can help you achieve your goals. You should not sell the stock if you have chosen the right companies that will give you good returns. When it comes to wealth building, the key is to keep stock in your portfolio for the long-term. How long do you want to keep it?

It all depends on your goals. It is important to remember that successful investing requires being meticulous. Investments in stocks, bonds, commodities or other markets can take many years. Most people expect to make instant money by investing. This is a mistake as wealth cannot be created quickly. The term "short-term" is less than five years. The majority of stocks are good, but it can take up to four years for them to yield a profit. A six-month investment option is not good for building wealth. It is better to invest for minor profits.

How can investments create wealth?

There are many investment options in India, but the way these investments pay their investors varies. These are just a few of the many ways that India's investment options can help you earn.

1. Earnings from capital appreciation

Stock investors know this method well as it is a great way to increase your wealth. This is the idea of buying low and selling high. Capital appreciation is a way to make money when you invest in stocks. Capital gains are when share prices rise. Capital appreciation can result in profits as high as +1,000%. These stocks are called ten-bagger stock. Remember that even if the stock is safe, it is not guaranteed that it will increase in value in the near future.

1. Earnings from dividends

Investors can earn income from dividend payouts. This is in addition to capital appreciation. A mutual fund or company that is healthy will likely distribute its dividends to its investors. The company may distribute a portion of its profits to investors, while keeping the remainder for new assets, share buybacks and business expansion. Dividends are determined by the number and quality of shares that an investor has in the company.

Let's suppose that a company decides give Rs10 per share to its investors. The face value of the share would then be Rs10 and it would be referred to as a 100 percent dividend. It is important to remember that dividends increase significantly over time for companies with strong fundamentals. The dividends from stocks will likely increase in value over time. This means that investors of these companies will see an increase in net income.

Wealth creation over long-term

Stocks like Wipro, MRF and Infosys, which were valued at Rs1000 in 1990, are now worth multiples if not hundreds of crores 30 years later. Stocks are not something that can be held for so long. It can be very difficult and tempting to let go of a stock and make a profit. Many wonder if it is possible to create true wealth if one doesn't hold their stock for at least twenty years.

But, it is often overlooked that the Rs1000 investment was also held over a lengthy period of time. As income increases, so does the potential for one to invest more. It is probable that investors increased the amount they invested in stocks over the years, based on the stock's performance. If you know how this amount will grow your wealth, it doesn't make sense to invest Rs1000. Most investors would have likely increased their investment over time.

This would have resulted in higher returns over a shorter time. Wealth can be created faster than you think, provided that the investment amount is taken into consideration. Analysts often assume that an individual has only invested Rs1000. The truth is that Indian investors tend to increase their investments in mutual funds, bonds and stocks.

The bottom line

Even if your stock holdings are not kept for more than twenty-thirty years, increasing the amount of capital and focusing on companies that have a strong foundation will increase the likelihood that you can amass wealth much sooner than you anticipated. It is important to not delay this process and get started as soon as you can.