Grow Your Net Worth Steadily



Please read the disclaimer at the bottom of my blog if you wish to continue with the contents below.

You might assume that the best way to increase your net worth is by working hard and putting every dollar you earned into investments to grow as fast as you can. Some of you might stick to dollar cost averaging with the combinations of ETFs(STI and ABF SG Bond). Some of you might try to build a resilient portfolio of stocks immediately and micro manage them individually. New investors tend to jump into the investment bandwagon thinking that time is money and hence investing without knowledge is still better than not investing. I completely disagree with this notion.

Although on paper, those might look appealing, they might not always work. Systematic risk, interest rate risk, inflationary risk, liquidity risk and political risk are real risks that can wipe out your small initial investment very quickly. Mr Market is emotionless. I know of some friends who have built amazing portfolios of stocks over the years through 'hearsay' but are still currently in the red. I am a proponent of steady net worth growth, where you acquire knowledge first before slowly scaling up your risk threshold.

1) Do not only think about saving and 'making money through investment' immediately. Pay all your high interest debts first. Paying your debt is equivalent to cutting off the accumulative interest that you have to pay. Indirectly, by paying less interest, your net worth margin will grow.

2) Keep your liquid cash that you are not using into the highest yielding savings account out there. I wrote a post on this before(here). Always start off your investment journey with minimal risk, but make sure your cash is still working for you in a safe environment. You will be surprised, during a market crash, your savings account might even perform better than your friend's investments.

3) Reduce your monthly expenses consistently. I wrote a post on this(here). Similar to paying your high interest debt first, reducing expenses indirectly reduces your monthly spending. This will gradually increase your net worth growth margin.

4) If you invest your money into a company without full knowledge of the company and the reasons for investing in it, you are taking a gamble. Spend a few dollars on books that teaches you fundamental and technical analysis first. Alternatively, you can browse through my blog and read some of the basics I wrote.

5) Once you have built up a sizable amount of cash and knowledge, Start building a portfolio with part of your cash leaving a portion of it for your emergency fund. Do note that the same risks are still there. You are just more knowledgeable now and so you can weigh the risk and rewards more accurately than before.

By scaling up your risk threshold like that, you will have a higher chance of accumulating cash and knowledge through a safer route. There are always more than one route to success, why not choose the safer and steadier one?

3 comments :

  1. Good and timely post Hayden.

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  2. Well-written advice. Thanks for sharing.

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  3. Yup! It is always better to be safe than sorry ;-)

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