By Matthew Rodrigues
Building assets can sound like your rich great-grandparents just died and you are now in line to become a millionaire through their inheritance, only to learn that they are donating all their money to a Scientology church. However, even if you don’t have a rich great-grandparent, building your own assets is not an impossible task. Building assets can be defined as increasing your net worth through increasing your income, or acquiring tangible/intangible assets of value.
Strategies You Can Deploy:
Play against Inflation:
While central banks may be raising interest rates, and investing may become more pricey, you can invest in hard assets like gold, real estate, or natural gas. This can be reflected in the recommendation to buy ETFs in the natural gas, real estate, and financial sectors respectively as the values of these assets are increasing.
A rather simple strategy, saving can happen in many ways, shapes, and forms. Although, saving may be a bit harder today than it was three years ago due to increased unit prices on necessities. It should be noted this is the easiest and most surefire way to build assets. Eliminating expenses on unnecessary purchases( do you really need that $150 sweatshirt?) is the best way to save. A good rule of thumb is if you can save 25% of your total income per month and put it into a savings account. Ideally a compound interest account so you can grow your savings over time with no risk of losing your savings.
While savings may be secure, they also are slow. With extremely low interest rates, you won’t make much money leaving your savings in a compound interest account. With the increase of reward in investing comes an increase in risk, but as Matt Damon said, “Fortune favors the brave.” Investing can be done with mutual funds, stocks, real estate, gold, and other investable items. Between investing in mutual funds and stocks, as a younger person with less capital, I would say it is more advisable to invest in stocks as there are minimums to invest in mutual funds. If you still want to be able to pool your money and invest it into multiple things with one purchase, I would recommend investing in ETFs. As aforementioned, investing in a hard asset like gold can be beneficial, as it doesn’t usually lose value, but can be a long term investment with significant returns coming every 10-12 years. While more difficult for young people, if they have the capital, they should invest in land that is on the outskirts of a large city if possible, as there it is a high chance it will be developed in the future and can be sold for a massive return on initial investment, even if the initial investment is high.
Passive Income/Income Generating Assets:
While passive income may seem elusive, there are many ways to make it. The most common known way to make passive income is through owning rental properties. Rental properties are probably the best income generating assets as the amount they generate is constant, while also scaling up with inflation instead of decreasing. A less common known way to make passive income would be dividend yielding stocks. These stocks pay their investors a set percentage amount at the end of each quarter, usually increasing over time. A smarter investment would be a dividend ETF as, with buying one, you buy multiple dividend stocks. This is great as with each quarter, there is no guarantee that one single stock will increase, some may decrease causing you to lose money. By owning multiple of these stocks you can make up for it with the returns from the others, or even still stand to gain money after the loss of one dividend stock. A newer method of passive income would be REITs (Real Estate Investment Trusts). These are like Dividend stocks combined with rental properties. How they work is investors buy shares from the REIT, they invest in rental properties, they collect the money from their rental properties, and then investors receive some of this money. Considering recents shifts in the real estate market, the price has gone down on some of these and it may be a good idea to invest in them now, as it is unlikely the housing market won’t improve in the future.