It all became clear to me after reading “Rich Dad Poor Dad” by Robert Kiyosaki. Why do some people have freedom of choice in their lives and others do not? After all, we all deserve it, yet the reality is a very small percentage of the world actually experiences it. Being wealthy does not always mean freedom. In fact, a lot of wealthy people have created a fancy rat race for themselves and are anything but free. I observed this so worked on the wealth and freedom equation, which is an art and science in and of itself!
Like Warren Buffet, Richard Branson, Tony Robbins and others have shared, the positive impact I can have on the world increases when I have time, money and the energy to create what I want in this world. Both funding and finding the balance has been important to me so I can design my life in accordance to my values and priorities. Creating passive income for me was critical, so is spending time with family, friends and causes that matter to me but it took design thinking and planning to get there. Let’s design the ideal investment(s) and life!
3 Ways to Boost Portfolio Returns:
1. Index Funds
The S&P 500 returned an average 10.28% a year from 1985 to 2015. At this rate your money doubled every 7 years. With the power of compounding you would have made a killing by owning an index fund that tracks the S&P 500 over those 30 years.
Let’s say you invested $50,000 in 1985, that would be worth $941,613.61! But while the market returned 10.28% a year the average investor made 3.66% a year over those 3 decades, doubling their money every 20 years ending up with $146,996. The massive performance gap is attributed to management fees, brokerage commissions and other hidden costs like inflation.
Data Source: Robbins, T and Mallouk, P (2017). Unshakeable: Your Financial Freedom Playbook. New York: Simon & Schuster.
2. Managing your Expenses
The two methods to invest are through passive or active management. Passive management has significantly less costs than active. It is typical for the expense difference to be at least 1% per year because active managers pay for fund marketing and sales costs and/or distribution fees on mutual funds and sales loads to their investments so that brokers will sell their funds. Remember, each percentage assigned to management or marketing fees corrodes on your ability to amplify compound investing year over year.
Data Source: Baton, C (2019). 6 Ways to Boost Portfolio Returns. https://www.investopedia.com/articles/stocks/11/6-ways-improve-portfolio-returns.asp
Asset classes have different correlations with one another; thus, an efficient mix can dramatically reduce overall portfolio risk and improve the expected return. Using forex, real estate to cryptocurrency can yield much higher returns than traditional investments. Anyone can use these methods today using a smart phone, while learning and working with others who have had success using these methods. Thus, diversifying can complement a portfolio by reducing the portfolio risk and improve expected returns.