There are many ways to increase your net worth—for example, you could make more money or spend less. Investing is a perfect opportunity to increase your net worth because you can do it on both ends of the spectrum: by investing more and by increasing the return that you earn on your investments. This is an important concept to understand because an asset is only worth what someone will pay for it in the future.
Investing is a lot more than buying stocks, however. It’s important that you understand what can improve your net worth through investing. In this article, we will cover how to improve your networth with investing.
Know your Net worth
The first step is to know your net worth. This means adding up what you own and subtracting what you owe. Your assets include everything you have of value, such as bank accounts, investment accounts, your home, and your car. Your liabilities include your mortgage debt, car loan debt, and credit card debt.
If you subtract your liabilities from your assets, the result is your net worth. If it’s positive, good job! If it’s negative, don’t despair: There’s a lot you can do to improve your financial situation.
The next step is to figure out how much money you want or need to spend each month. You might base this on a budget showing how much money you’re spending now. You could also use a bare-bones budget showing how little money you need to spend each month (for example, if you’re planning for retirement).
Once you know how much money you’re living on now and how much money you want or need to live on in the future, the rest is simple math: Subtract the second number from the first number to see how much extra you’ve got each month.
Once you know this amount, decide how much you want to invest.
Decide how much you want to invest
Risk tolerance is key to your investment strategy. The amount of money you have to invest will dictate how much risk you can take on. If you’re just starting out, you may only be able to invest a small amount.
If your net worth is already substantial, then you’ll probably want to limit risk as much as possible. There are several ways to do this, but the easiest way is by diversifying your investments
This means investing in different things so that if one goes down, the others won’t necessarily follow suit.
Find a Financial Advisor that fits you
A financial advisor can help you with all of your long-term financial decisions, from investing to retirement planning.
It’s best to find a fee-only advisor, which means that the advisor is paid solely by the client and does not accept commissions or any other form of compensation that might create a conflict of interest. The CFP Board has a searchable database to help you find one in your area.
Rebalance your portfolio annually to maintain your net worth
Many investors let their investments ride with little oversight. But over time, certain stocks may become relatively larger portions of your portfolio. This can happen when one stock in your portfolio performs better than others or if you continue investing in one stock while not investing in other stocks. If your portfolio changes because of market conditions, it’s time to rebalance.
Diversify into different asset classes and industries so that you aren’t exposed to the volatility of any one investment.
Consider adding new investments to your portfolio a couple of times a year to keep it fresh and changing along with the markets.
Check your finances quarterly and make adjustments as needed to improve your net worth
If you’re serious about boosting your net worth by investing, it’s likely that you’ve already got the basics covered. You’re putting aside a percentage of your paycheck every month and regularly contributing to your retirement accounts.
The important part is to check the progress of your investments.
Look at the individual investments that make up your portfolio. Do they need to be rebalanced? Have any of them underperformed relative to expectations? If so, consider replacing them.
If you’re investing using a robo-advisor, the investments will be automatically rebalanced for you and the algorithmically-generated portfolios will be periodically adjusted.
Regardless of how you invest, check in regularly to ensure that your efforts are actually improving your net worth.
Diversify your investments, including across asset classes and industry sectors.
Investing is a great way to increase your net worth, but it’s not always easy.
A balanced portfolio can help protect you against losses if one area of the market takes a dive.
The key to investing is to build a diversified portfolio. This means you should have a mix of investments in different asset classes, such as shares, property and fixed interest. You should also diversify across industry sectors and geographical regions. This will reduce the risk of your portfolio being impacted by the failure of one investment.
If you’re going to invest in individual stocks, do your homework. Learn about a company’s products or services, financial health, and management before investing.
Invest for the long term. Putting money in bonds, stocks or mutual funds is a long-term investment strategy. Don’t invest money that you’ll need within five years unless you’re a very savvy investor and know what you’re doing.
Keep investing even if you’re on track.
If you’re fortunate enough to be on track to achieve your financial goals, congratulations. But don’t let up. Keep investing and saving, because there are still plenty of potential pitfalls that could derail your financial future.
It’s important to keep investing even if you’re investments are doing well and you are on track. Regularly contributing to your investment accounts is one of the best ways to make sure that you stay on track and continue to see healthy growth in your net worth.
Invest in Real Estate
One of the key reasons that real estate investing appeals to many people is the fact that it can help them increase their net worth. But, if you don’t have a lot of money to put into rental property, how can you get started?
One way is by using hard money loans to finance your investment. But, there are other ways to increase your net worth with real estate, too.
Here are a few tips to get you started on the path toward gaining equity through real estate:
Buy low and sell high – This is basically the golden rule of investing in any market and it’s just as pertinent in real estate as it is in stocks or bonds. Many people do not want to invest in areas that they deem unsafe or ones with lower-quality schools. However, if you buy in these neighborhoods when no one else wants to, you’ll likely find that selling them later will prove quite profitable.
Buy a fixer-upper – The potential for profit here is even greater than buying a home at a low price — you could actually increase the value of your investment significantly by putting time and effort into making repairs and renovations.
Invest in commercial real estate – Commercial and industrial properties tend to have higher profits because the tenants pay
Avoid buying Deprciating Items
Depreciating assets are those that decrease in value over time. Some examples include cars, boats and furniture. When possible, purchase assets that will increase in value over time, such as real estate or stocks.
Be careful with credit cards. Credit cards can be a very useful tool for financing purchases that you need for your business or home. However, credit card interest rates are often very high, and it can be easy to end up spending more than you intended to on unnecessary items if you’re not paying attention. Make sure you’re always paying off your balance in full each month!
Invest your money wisely. If you have any money left over after paying off debt and saving for emergencies, it’s important to invest it wisely so that it will grow over time instead of just sitting there earning little or no interest at all.
Learn how to invest in stocks in small amounts
But it’s not as hard as you might think. In fact, the investment process can be boiled down to a few simple steps. Once you know them and understand how the process works, you’ll be able to make your wealth grow in ways you never imagined possible.
Investing small amounts of money is a great way to start building wealth without taking on huge risks — but only if you make smart investment choices. That means being careful about what stock investments you choose when you’re first getting started.
The objectives of investing are long-term need, not short-term greed. Wealth is measured by looking at the complete portfolio and all the pieces that comprise it, and a holistic approach is necessary for allocating funds. Avoiding debt and knowing how to allocate your resources properly will keep your net worth on the upswing, even during economic downturns.