BENGALURU: Individual financial well-being has long been critical for a secure life, especially when it comes to dealing with crises. Long-term wealth creation thus becomes pivotal to securing financial independence and mitigating risks. Prudent financial planning is also critical for meeting critical life goals such as children’s education, wedding, and retirement plans among others. 

As Indians wake up to the fact that long-term wealth creation and protection is critical, many are urgently re-evaluating their long-term portfolios.  Speaking to TNIE, Anup Seth, Chief Retail Officer, Edelweiss Tokio Life Insurance shared the four most important things to consider for long-term wealth creation:

Liquidity isn’t always good

Liquidity has been considered a critical marker for evaluating any financial product. For instance, unit-linked plans continue to be considered an unworthy purchase, with the 5-year lock-in period seen as a drawback. However, new-age Ulips are, in fact, a comprehensive solution for medium-term financial goals like child financial planning.

For such goals, this lock in period is critical to instil financial discipline and ensure that the customer does not end up tinkering with the funds to fulfil short-term needs. What we often forget is that customer requirements as well as degree of financial discipline varies from person to person. One might be tempted to encash the asset for insignificant expenses and so, a certain lock-in period on your assets is always beneficial.  

Income planning for crisis 

An important lesson that the pandemic has taught us is the necessity of contingency planning and the adverse consequences of being financially ill-prepared to meet sudden emergencies. It must be kept in mind that emergencies—medical, financial, natural disasters or pandemics—strike without notice and we must account for those events when planning finances.

Power of compounding 

When planning for the longer time horizon, power of compounding plays a crucial role in multiplying your money. Simply put, compounding is the cumulative interest earned on your money and the interest accrued. It helps mitigate the adverse impact of inflation on wealth erosion and its benefits are directly proportional to the holding period of your long-term savings instrument.

Realising the full potential of compounding requires an early start, and a regular allocation of a fixed portion of funds at frequent intervals towards that instrument. The power of compounding also insulates your funds to a large extent from the temporary effects of market movements and keeps you from resorting to any panic selling of stocks, making withdrawals, during a market correction or upon a decline in returns. 

Retirement planning 

We rarely assign enough importance on retirement planning—a life goal which needs planning from a much earlier age. A good thumb rule to follow is to create resources that offer at least 75-80 per cent of your income so that you can continue to enjoy a similar standard of living during your non-working years. Income solutions offered by life insurers  are an ideal method of planning for retirement with an additional mortality protection.