A glimpse on Net Worth Growth Rate Table. Like to be upfront that this is not representative of general population. Gives a rough background on one with Graduate education, relatively good job, not new to equity value investment, supporting wife, two toddlers, from a generation of sandwich class, hardly pub, owned apartment, give sufficient parental allowance and a value saver.
Net Worth grows from a low base but it can be compounded quickly to sizeable amount in a decade. So do not think starting from a low base is impossible to reach.
In year 2008, investment relative to saving is not much. So GFC impact is relatively minimal. Interestingly 2015 growth is worst than 2008 as more cash is ploughed into investment that do not yield good result that year. The jump in 2019 is amazing because the portfolio size is already large by then. For the year 2021, if the recovery continues 2nd Half, it could be a good double digit growths.
Net Worth returns do not equate equity returns. Not surprisingly, Net Worth returns are lower due to home property, savings/cash , emergency fund or lower returns asset. Net Worth surely amplifies if we fully invest our assets however this comes with Risk. The key question is how to manage this Risk and why is it needed, as allocation of investment goes higher will we be putting our family well-being into jeopardy.
At the end of the day, from the rate it compounds, we probably won't be able to expense it down to zero if we maintain reasonable lifestyle till we passed. So in essence there is no point taking too much risk just to have the opportunity to achieve too high rate of returns. A lot of wealth do not passed three generations probably as the saying goes What we need is to manage it in a way there is sufficient growth at reasonable comfortable pace and not to compete with others who may have take higher risk based on their own circumstances. Ensuring our future generations are strong enough to compete and not spoon-fed should be the way.
The challenge with higher Net worth after years of compounding is how to maintain the pace and capturing low hanging fruits. Chances are salary and investment will grow it larger as personal expense and emergency funds in absolute term may not grow as fast. Of-course there will be situation such as once we reach retirement, medical expense or "Trip to Mars ticket" etc where there could be drawdown instead if the outflow is large enough. Regardless, no matter how much we earn, if spending habits requires more, growth won't happen.
PS. Market moves ahead again. Looks like my table needs to be updated. :)
Articles in this Blog is personal take and educational purposes only. Reader should seek their own professional help when making financial decision and be responsible for their decision.
Thanks! Yes, patience & longterm attitude will help drive investments forward.ReplyDelete
For most average people, the biggest factor for networth in the first 20 years is career or active income.
How to invest, what to invest, how to analyse companies, investing techniques, etc should be secondary effort in the first 10-15 yrs. Unless it happens to be your day job e.g. analyst at a bank.
Just put some money into a S&P500 or Global ETF every month & focus on your career.
Active Income is definite income so safety comfort is always there except that it comes with stress to many (not all). In fact in my later years the income continues to grow. A way that company continues to entangle you from leaving. LOL. Is mentally hard to leave a well paying job.Delete