It involves much effort, discipline, and a long time to accumulate wealth, but to wipe out the entire accumulated money is very easy and doesn't need much time and enterprise. A few practices can erode our wealth that has to be avoided and kept away. For building wealth utilize the right products in the right manner to help preserve wealth and sleep peacefully.
People utilize various financial products for the creation and protection of wealth and to achieve their financial goals. But there are many products/practices which often lead to the destruction of total wealth. Every asset class is different from others with its risk factors and unique features, and if misused, it can destruct whole wealth than the creation of it.
Stock market speculation/ day trading: It is the activity of buying and selling shares for a concise duration without taking delivery to gain from the daily volatility in the stock prices. The chances of making money by stock market intraday trading are like winning a lottery. The one who makes the most money out of a day trading is the broker. The greatest investors like John Templeton, Warren Buffet, etc., have created wealth by making fundamental investments for the long-term but not by guessing price movements.
Derivative trading: Futures and Options are much leveraged products and available in the stock market for better price discovery. Professionals use them to hedge existing investments. A person may lose his lifetime earnings by using them without proper knowledge and guidance. It can be dangerous and destroy whole accumulated wealth.
Investing in term deposits: Investors are more obsessed with the safety of their investments and opt for it if they offer guaranteed returns and to double the amount in 6-10 years. Fixed/term deposits are suitable for short-term of 1-2 years. But if used for a tenure of 6-8 years, investors will lose its value due to inflation. If FD return is 8.5% and inflation 8%, the actual rate of return will be less than 0.5%. If taxes are considered, overall returns will be negative.
Keeping cash: Another myth for safekeeping money; is to keep it in cash form, which has storage risk also; it is the only asset class that gives “0” returns. The value eroded due to inflation. It has to be kept at a minimum level for immediate, emergency needs. One can avail cash round the clock with the help of ATMs.
Indiscriminate use of credit cards: Credit cards provide convenience and widely used as one needs to pay while using it for purchase and can enjoy an interest-free period of up to 45-60 days after purchase. But yet times, people overspend using them. If used wisely and dues are paid in time, nothing is better than a credit card. It also helps us earning reward points for the money we spend with it. It is better not to fall into the trap of skipping your credit card payments or paying “minimum amount due” as they start charging hefty penalties and interests which can be as high as 3.5% compounding per monthly annual rate of 51%.
By Team Wealth ATM
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