How to increase your income and wealth in 2011

The year 2010 brought back salary hikes that had to be foregone in 2009. That was just the beginning of a good year for wealth creation in which most assets in your portfolio, stocks, gold, property and even FDs, made handsome gains. Only inflation played party pooper, denting the real returns from your investments. Wouldn't it be wonderful if in 2011, your income and wealth rises at least as fast as they did last year, and the rate of inflation comes down? Right now that doesn’t seem likely. Future is never certain, but we list some possibilities here that will help you prepare for it better.

1. India's rising income to push up your pay package

Except those who work for government, everybody else’s income growth, and even job security, eventually depends on the health of the economy, which is best captured in three letters: GDP or Gross Domestic Product . The growth rate of GDP has picked up during 2010-11, and the year is mostly likely to show a 9% growth. That will ensure a good salary hike in most companies. So unless you have put up a really bad show at work, look forward to surprise jump in your pay cheque starting April 2011. GDP growth is the proverbial rising tide, it usually lifts all boats, including the stock market. So a slowdown in 2011-12 will moderate gains.

2. Global income to decide the country's growth

Globalisation is not just an obscure economic term any more. It’s directly affecting the returns on our investment and the impact was most visible in 2010. Foreign institutional investors drove the markets almost singlehandedly by bringing in a record $29 billion. Some of that foreign money was what the US central bank had printed for investments in the US (graph). Upshot for 2011? Keep an eye on global economic forces, for they dictate your fortune much more than you think..

3. Markets are in your portfolio, whether you invest in stocks or not

From the finance minister to financial planners and from foreign investors to your pension fund manager, more people are watching movements in stock markets than ever. Why? Because from insurance schemes to pension plans to mutual funds, every investment option is getting market-linked, and so is your personal finance, whether you know it or not. With each passing year the trend will only accelerate. So even if you don’t invest directly in stocks, do figure out your market exposure in 2011. And for those familiar with stocks, don’t expect the kind of returns you got in 2009 or 2010 from 2011.

4. Lesson for the future from gold’s golden run

Even though the returns on investing in gold won’t be as spectacular in 2011 as they were in 2010 (60%), the metal has done enough to earn itself a serious and permanent place in your portfolio. Of course every earning Indian is certain to have some amount of gold stashed away as jewellery, but make sure that you account for its value and plan for an annual addition to it, no matter however small and in what form. It could by say 10,000 a year and in ETF than the metal.


5. Inflation: Biggest wealth destroyer

Inflation is a double-edged sword, with both edges cutting at the same time. It reduces the value of investment and raises the price of what money buys. Inflation is projected to remain high most of 2011 (see pg 12). Your task: Assess your family’s inflation (depends on your spending pattern) and aim at least 3% higher rate of return than your inflation. More on inflation and investing in the next week’s issue of this paper.

6. Crude price affects both income and expenses

When this issue of ET Wealthwent to the press crude oil prices were projected to hit $100 a barrel sometime soon in 2011. Even if the price doesn’t reach the three-digit mark, or does that only gradually, the fact that people are betting on its upward spike is worrisome. Retail prices of petrol will rise even further since government isn’t subsidising it any more. diesel prices will continue to be kept low through subsidy, which in turn will affect the stock price of all oil marketing companies. More fundamentally, higher crude price will hurt the 2011-12 GDP growth, which we discussed in the first point.

7. Exchange rate to impact your household budget

Global investing has taken roots with host of opportunities to invest abroad, through real estate, stocks or funds. An appreciation in rupee can help you earn a few extra percentages, just as depreciation can cut your returns. If you haven’t taken a plunge in global investing, the value of rupee will still matter for your investments and spending in 2011. From petrol to onion, every imported product will be cheaper if rupee remains strong, which it is expected to.

So, both opportunities and difficulties in making money will grow in 2011. It will take more attention and action to create wealth, the upside is that if you monitor and manage your money well, opportunities for creating wealth will be definitely more than ever in the past. ET Wealth will be your guide in making wealth creation easier.