Grow Your Liquid Net Worth Better than a Billionaire to Enjoy Carefree Financial Freedom
Good morning, Live Better than a Billionaire-a-Holics!
Are you feeling motivated this morning? I certainly hope so. I know that I am!
What is liquid net worth? It's simply money you could lay your hands on within a week. That's my definition. Some people would define liquid net worth to include money you can get within a month. But I'm sure you see what I'm talking about.
Liquid net worth isn't money you can borrow against assets though . . . like a home equity loan.
Why is liquid net worth important? It's money you can use when you find great opportunities, hit bumps in the road or simply want to take some time off. Many people preach that financial freedom comes from having so much passive income that you can live off of that passive income. But peace of mind comes sooner when your liquid net worth insulates you from having to scramble around financially when you want to do something major.
Many people who focus on having great amounts of passive income also have enormous amounts of debt to secure cash-flow producing assets. Donald Trump has been in such a situation in the past. When interest rates rise (as they have been for over a year now), it becomes harder and harder to sustain that debt. Someone without lots of liquid net worth finds herself or himself in quite a squeeze when that happens. Rising interest rates reduce the value of cash flow producing properties. It can become a vicious cycle.
Focus first on increasing your liquid net worth before you try to expand your passive income. That will give you a truly carefree existence.
Here are a few ideas:
1. Keep a jar and save a consistent amount in it every day. It doesn't matter if that amount is initially a penny. Do it. It will help you establish the habit of savings. Put that jar where you will always see it. You will be proud of yourself when you do. You can always increase the amount later. Invest that money once a month.
2. Find a tax-advantaged investment method. If your company has a 401-k plan which the company matches, that's a great choice. You can arrange for the money to be deducted from your paycheck. If you have your own company, find out about setting up your own pension plan on a tax-deferred basis.
3. Invest in the lowest P/E well-diversified, low-cost index funds. Many people will tell you that you have to hold bonds . . . or lots of real estate. They are thinking about a different problem. You want to grow your assets over at least 10 years. For that purpose, such index funds are a better choice. They grow faster and you can make them less volatile by holding a world-based portfolio. You can acquire an inexpensive fund with quite small investment sums. I recommend that you use ETFs (Exchange Traded funds) if you are only going to have $200 or less to spend each time and regular index funds from Vanguard when you have more.
You should focus on funds that track the S&P 500, the Russell 2000 value stocks, European, Pacific, Emerging Market and Latin America. Concentrate your investments in whichever one has the lowest multiple of price/earnings at the time. For most funds that will be Emerging Market stocks right now. In some portfolios, the Russell 2000 will be cheaper.
Why choose those? Because they reduce your volatility by having you own a lot of stocks (with the exception of Latin America which is pretty concentrated) , and you are buying earnings as cheaply as possible. Sooner or later, money flows into the cheapest stocks and brings them up to higher levels. When that happens, you move into cheaper stocks.
This strategy will give you a return much higher than 99% of all professional money managers earn with little risk.
During 2005, your past investments in emerging market stocks would have earned you over 25%. That's more than three times what the S&P 500 has earned so far this year.
Could a billionaire do better? I sincerely doubt it.
Billionaires don't have as good tax-deferred choices for liquid investments as you do. No one is going to be matching lots of 401-k money for them. They also need to place lots of money which means picking expensive money managers and hedge funds. These are less mobile places to put money so they cannot shift into cheaper investment categories as fast as you can.
If you doubt me, look at billionaire Warren Buffett's track record over the last ten years. His Berkshire Hathaway stock value hasn't done much. You would have beaten him with this strategy by a wide margin.
N.B. As you can tell, I'm experimenting with color. Let me know what you like and what I should change about my use of color.
Please let me know what else you would like to learn, and I'll do my best to help in future blog entries.
Here are some upcoming subjects:
Saturday, let's look at inexpensive, fun ways to decorate your home and yard for Christmas.
On Sunday, let's experience the peace of meditation.
Monday, we'll look at free teleseminars as a way to gain valuable knowledge.
On Tuesday, you and I will look at how asking the right questions can open up the path to living your dreams.
Wednesday, we will explore ways to make wonderful, last minute holiday gifts inexpensively that will arrive before December 25. This is the procrastinator's special.
August 31 was the most frequently read blog entry to date. Be sure to check it out!
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Remember to also visit
Live Spiritually Better than a Billionaire at http://livespirituallybetterthanabillionaire.blogspot.com/,
Be More Successful than a Billionaire at http://bemoresuccessfulthanabillionaire.blogspot.com/,
http://2000percentsolutions.blogspot.com/,
Enjoy Mansions Better than a Billionaire at http://enjoymansionsbetterthanabillionaire.blogspot.com/,
Enjoy Football Better than a Billionaire at http://enjoyfootballbetterthanabillionaire.blogspot.com/ and
Be a World Hero Better than a Billionaire at http://beaworldherobetterthanabillionaire.blogspot.com/.
I offer individual on-line tutorials and in-person seminars on living better than a billionaire on five dollars extra a day, creating 2,000 percent solutions (20 times the results with the same effort), developing more profitable business models and designing strategies that work regardless of the business environment. For information, contact me at ultimatecompetitiveadvantage@yahoo.com.
I am available to you as a speaker on these subjects. You can find my background at http://livebetterthanabillionaireon5dollars.blogspot.com/2005_08_30_livebetterthanabillionaireon5dollars_archive.html/.
May God bless you. Merry Christmas!
Donald W. Mitchell, Your Dream Concierge
Copyright 2005 Donald W. Mitchell
posted by Donald Mitchell @ 10:38 AM
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