Investment Growth (oohlahlah)

You have to love it when your investments grow. The stock market has been roaring lately making it fun to look at those monthly retirement statements and investment reports. Someone recently emailed that their net worth has grown over 30% in the past several months. These times in life are fun. All of us need to take advantage of the "fat years."

The reality of the matter is that all of us should be striving to see our net worth grow due to the returns on investments exceeding what we actually add by saving each month. That is the power of compounding in relation to investments and net worth. Our net worths beget more net worth (assets) just like the saying, "The rich get richer, and the poor get poorer." There is clearly a point where investment balances start doing the hard work for you. This is why it is so key to save early to get those balances going.

Think about it. $100,000 will earn $5000 each year at only 5% return, and $1,000,000 will earn $50,000. Now you can see how the wealthy can spend so lavishly. $10 million invested conservatively and safely will generate $500,000 to blow every year without touching the principal balance.

Don't Make Haphazard Investments

So many times people focus on "What will make me the most money?". However,
that is not the question to be asking. The question should be "What kind of
return do I need or want to make on a particular investment?" Once you cross
the line to make as much money as possible, then you will inevitably lose.

Remember the addage, "Bears make money, bulls make money, pigs get
slaughtered!" Warren Buffet and many of the other great investors of our age
have splend volumes of time and energy making sure that the investments that
they make with not lose  money, but make a great return.

You have to avoid haphazard investments because rarely will they turn out
good for you. You can pinch pennies all day long trying to save money to
build your net worth only to lose half of your net worth on a bad
investment.

You have to make 100% to just make your money back if you experience a 50%
loss. Even with great returns it will take years to recoup.

I speak from experience from my twenties, but I have seen many in their
fifties and sixties make the same mistake.

Tags: Investing, Investments, Net Worth, Networth, Net Worth Principal, Warren Buffet, Investors

Your Home a Wonderful Asset, Not an Investment

The reality is that for a large part of your life (especially the early years) your house is by far the largest asset that you may have. A home is a great asset to have, but you need to be building other assets such as investments as well. In my book, I point out that owning a home is a great way to build your net worth; however, it should not be seen as an "investment" unless your intention it truly to turn it for a profit.  It works out as a great way to build your net worth because you would have to pay rent somewhere anyway and by the time you take out those cost it turns out to be a very productive endeavor.

The rate of return on your home is not necessarily a great rate of return otherwise compared to what I call investments like businesses, stocks, bonds, etc. David Crook recently wrote a great article about this topic in the Wall Street Journal (WSJ) on March 12, 2007. Your rate of return on your home over the long haul may actually be very small, but owning and paying off a home is a wonderful way to add to your bottom line.

You should have a goal to have investments as your biggest assets by the time you are in you 40's. Be sure to add to that retirement account regularly.

Come back for future posts or email me if you have a financial topic or question that you would like me to address.

Paul Ebisch