3 Common Myths Holding Back Your Wealth: Nilesh Shah’s Investment Mantra

Nilesh Shah, one of India’s most respected investment minds, has consistently guided people on how to make informed financial decisions to build wealth. In his years of experience, he has come across several misconceptions that people hold about investing and money management. These myths not only hinder wealth accumulation but also keep individuals stuck in low-yield, unproductive practices. Let’s debunk three of these common myths, which, when removed, can unlock significant financial growth.

Myth 1: Currency Notes Can Grow Over Time

A prevalent belief among many Indian households is the notion that keeping cash at home can generate wealth. Nilesh Shah, however, strongly opposes this idea, stressing that currency notes will not grow in value-they will only lose value due to inflation. According to him, it’s crucial for Indians to break free from the myth that cash stored at home can appreciate over time.

Shah pointed out a striking fact: between FY21 and FY23, Indian households invested a remarkable ₹4 lakh crore in mutual funds and ₹2 lakh crore in equities. However, an even more significant sum-₹9 lakh crore-was simply held in currency notes. This, he argues, is an inefficient way of handling money. While keeping cash might provide a sense of security in the short term, it ultimately results in the loss of purchasing power due to inflation.

The key takeaway here is simple: cash that’s left untouched, whether in your home or bank account, depreciates over time. Shah advises individuals to shift from hoarding currency to investing in assets that offer tangible returns. Whether it’s stocks, bonds, real estate, or mutual funds, there are various investment avenues that, over time, will provide returns that outpace inflation.

Myth 2: Wealth Without Risk

Another pervasive myth that Nilesh Shah addresses is the belief that it’s possible to build significant wealth without taking risks. Many individuals tend to shy away from investments that involve any level of risk, preferring to park their money in low-yield instruments like savings accounts, fixed deposits, or insurance policies.

Shah presents a stark reality: between FY21 and FY23, only 7% of household savings were directed into higher-return products like equities, mutual funds, bonds, and debentures. The remaining 93% was locked into low-return, risk-averse assets like currency notes, bank deposits, and small savings schemes. This imbalance in asset allocation, according to Shah, is one of the biggest obstacles to wealth creation.

He emphasizes that wealth creation involves taking calculated risks. While the prospect of losing money may seem daunting, avoiding risk altogether means forfeiting the opportunity for higher returns. It's essential to understand that risk and return are intertwined-if you aim to grow your wealth significantly, you must consider investing in riskier but more rewarding assets. For instance, equity markets may be volatile in the short term, but historically, they have provided significantly higher returns compared to traditional savings methods. By keeping a portion of your wealth in riskier investments, you stand a better chance of seeing substantial long-term growth.

Myth 3: One Decision Can Impact It All

Many individuals believe that one critical financial decision-whether it’s choosing between a Public Provident Fund (PPF) or an Equity-Linked Savings Scheme (ELSS)-will shape their financial future in its entirety. This myth can lead to overemphasizing one investment choice while neglecting the broader picture. Nilesh Shah advises against such a narrow perspective. He explains that long-term wealth growth is more about a series of small, consistent decisions than about a singular, life-altering choice.

Shah often illustrates this concept with an example comparing the returns from a PPF and an ELSS. If an individual invests ₹12,500 monthly in a PPF over 25 years, the investment will grow to about ₹1.07 crore (tax-free). However, the same monthly investment in an ELSS could grow to approximately ₹4.4 crore, even after taxes. This disparity arises from the higher returns associated with equity-based investments compared to the relatively stable but low-yield returns of a PPF.

The crux of Shah’s message here is that a single decision, such as opting for a riskier investment over a safer one, can indeed create a significant difference over the long term. However, the key to wealth is not focusing on just one decision, but on making consistent, disciplined investment choices over time. Diversification-spreading investments across different asset classes such as equities, bonds, real estate, and commodities-reduces risk and optimizes returns, ultimately leading to wealth accumulation.

A Holistic Approach to Wealth Building

Nilesh Shah consistently stresses the importance of developing a disciplined, long-term approach to investing. He advocates for regular investments, which, like “little drops of water,” can create an ocean of wealth over time. Regular and consistent investments, even in smaller amounts, tend to grow exponentially with the power of compounding.

He also recommends diversifying your investment portfolio. No single asset class guarantees returns, and diversifying across different sectors and instruments helps balance the risk and potential returns. The broader your portfolio, the better the chances of cushioning against market volatility while achieving reasonable returns.

Shah’s advice isn’t about chasing quick profits. Instead, it’s about being a patient, informed investor who understands the importance of risk, diversification, and the power of consistent, long-term investing.

Final Thoughts

Debunking these myths is a crucial step in growing your wealth. Currency notes do not appreciate; wealth creation involves taking risks; and wealth growth is not defined by one monumental decision but by the series of well-thought-out choices you make. By letting go of these myths, you can develop a stronger financial strategy, ultimately achieving financial freedom and growth. Stay disciplined, diversify your investments, and keep investing regularly-this is Nilesh Shah’s mantra for growing wealth.