How can I increase my net worth?

Question

What is the best business/investment plan to increase my net worth quickly if I have already paid off all debts?

Answer 1

One of the fastest ways to bump it up big is to take out a life insurance policy on yourself. Life insurance premiums are considered an asset.

Take out a $500,000 policy and you'll immediately (with the right type of policy) have a net worth increase of that amount!

Next, you need to invest and you need to do it as diversely as you can afford. Get into an IRA or a 401k if your employer offers it. Do both if you can afford it!

Set aside some money of your own to invest directly in stocks and bonds. I STRONGLY suggest you seek the professional opinion of a certified financial planner to do this. E-Trading on your own doesn't always go real well.

Answer 2

First, start some kind of automatic savings program -- set up a certain percentage of your income to go into a separate account, NOT your main checking account. If you never see it, you won't spend it. It doesn't have to be in a super high-yield account; the idea is that it's only in this account for a few months, till you use it to invest in something that requires a larger initial outlay.

Next, decide how much of your investment you're willing to risk at any given time. In general, the higher the returns on an investment, the higher the risk due to fluctuations in the value of what you're investing in. Most investors try to achieve balance between the amount of money they are willing to put in a high-return investment (with a higher risk of losing it) and the amount they put in low-return investments (with less risk of loss).

Lots of people start out investing in mutual funds, because much of the risk is reduced. A mutual fund is a large pool of shares in potentially hundreds of different companies, each with their own strengths, weaknesses, cash flows and net worths. When you invest in a mutual fund, you're buying a fraction of this entire pool of shares. As the companies whose shares make up the fund rise and fall in value, the fund rises or falls. The premise is that -- just as a herd of zebra can escape a hungry lion even if one or two individual animals are eaten -- the mutual fund itself will go up in value even if a couple of individual companies lose value on a given day. And mutual funds are managed, usually by people with lots of experience in tracking and anticipating the market; they're not always right, but they have both experience and the law of averages on their side.

On the other hand, picking the right stock or two can usually outpace a mutual fund, precisely because you don't have the mediocre performers dragging down the average. It does take more knowledge, however -- you really need to learn to look at a company's fundamentals, understand the market it's in, and have a feel for the company's management and future direction. Or you have to be really lucky.

Real estate is a special case. On the one hand, the stock market almost always beats real estate on a percentage basis, but you have a tremendous amount of leverage in real estate. Buying $10,000 worth of a stock that returns 20% per year will yield you $12,000 (not allowing for compounding, let's just run simple demonstration numbers for now). But putting $10,000 down on a property worth $100,000 will let you appreciate based on the whole $100k -- meaning that even if the property only goes up 5% this year, your initial investment is now worth $15,000 instead of $12,000. Of course, you've been making mortgage payments as well, but they frequently come with tax advantages (and of course, if it's your own home, you have to live somewhere). I'm not a tax lawyer or CPS, and you should definitely consult one (probably one of each!) if you're looking into purchasing real estate as an investment.

So, as a very general suggestion, I'd recommend something like this:

1 - Start any kind of savings vehicle -- even a passbook savings account -- and divert as much of your income as you can into it on a regular, ongoing basis. Even if it's just $50 a week, that's $2500 a year.

2 - While your funds are accumulating, start following the market. My favorite analysis site is The Motley Fool (www.fool.com) -- they have good articles and insight on investments, market trends, and background. You can also regularly find ads for low-fee brokerages on their site. (Signing up is free; it gets you a weekly email newsletter and occasional spam about special offers, but it's well worth it.)

3 - Plan on investing regularly -- that is, every time your funds reach a certain goal, move them from your short-term accumulator into your investment account. (You may even be able to set this up automatically, depending on the financial institution that holds your accounts.) Keep contributing -- every dollar you put into your investment account is another dollar that can grow at your current level of return.

4 - Re-evaluate your holdings a couple times a year. It's never a good thing to have too much of your money in any single investment, even if it's returning huge yields -- because those high-yield investments tend to have high drops as well. So keep re-evaluating your risk relative to the market and change your investment allocations accordingly.

5 - Whenever possible, reinvest any dividends you receive. Some companies (and therefore some mutual funds) not only show an appreciation on their share values, but they pay shareholders a portion of the annual or quarterly profit in the form of dividends. If you have a few million shares of such a company, the dividends can actually provide you with a fat income. For the rest of us with 120 shares of this and 78 shares of that, dividends are a nice way to increase our share holdings at somebody else's expense. Most financial institutions will allow you to reinvest your dividends -- that is, to take the dividends not as cash but as shares in the company that issued them. These plans (called DRIP, Dividend Re-Investment Plans) are a great way to increase your nest egg even faster -- basically, you're letting the companies you invest in contribute to your account.

There's a lot more to it, but this is enough to chew on for now. Think about how to accumulate funds, think about how to balance your investments between risk and stability, and mainly, keep investing.

Answer 3

MAKE MORE MONEY