This article describes in details my general investment strategy and investment principles when it comes to managing my family money. You will also find here the list of revenue-generating assets that I consider important drivers for wealth building.
At this stage of my life, me and my wife are focused on ‘systematic and continuous wealth building’.
To know how wealthy you are, you need to calculate your Net Worth:
Net Worth = Everything you own – Everything you owe to others
Another name for Net Worth (or wealth) in the business jargon is Equity. On the Balance Sheet, it is calculated as:
Equity = Total Assets – Total Liabilities
We are not yet at the stage of ‘wealth preservation’. We still want to increase our Net Worth (or Wealth) making the snowball bigger.
My General Investment Strategy
In general, my investment strategy is reasonably conservative. I do not consider it to be ‘extremely conservative’. At this stage of our lives we are focusing on earning money from Active Income and investing our savings to earn Passive Income. This is the list of all My Different Types of Income.
We are growing our family’s Net Worth (or wealth) by saving cash from our paychecks every month. Later, we invest that cash in revenue-generating assets which also earn money for us every month or quarter. So, on one hand, we are making money, and on the other hand, our money is making money for us too.
By acting in this way, my family’s Net Worth (or wealth) is growing each month, and increases at around 20% annually given almost zero risk. We are very comfortable with this arrangement!
The revenue-generating assets that I consider worth investing include the following four:
1. Residential Real Estate
2. Long-term Bank Deposits
3. Online Business
4. Stock Market:
a.) Index Fund ETFs / Mutual Funds (Passive Investing)
b.) Dividend Stocks (Active Investing)
By the way, as ‘risk’, I understand our deaths, complete destruction of apartment buildings, the end of the Chinese banking system, or the collapse of the Chinese economy. Each of these is statistically possible, but very unlikely considering how old and stable China is.
My Investment Principles
I have managed my family’s Net Worth (or wealth) in the past decade using the following principles, so I will just continue acting alike (or very similar) in the future.
Overall, I like spending money on Assets that meet all the following criteria that I consider indispensable when investing:
- Invest in things that create value for other people, e.g. residential real estate is a shelter for the whole family, commercial real estate is the place where businesses run their operations, companies can produce goods and provide services to solve various human problems, farmland can grow food, etc.
- Invest in financial instruments that are mainly risk-free, so there is not much risk of losing even a single penny from the initial capital invested. Remember, there are two basic rules of investing:
Rule No. 1 is to protect your capital. And Rule No. 2 is to never forget Rule No. 1.
I believe this quote originally comes from Warren Buffet, the CEO of Berkshire Hathaway and self-made billionaire. Never lose your money. Because it is very difficult, tiring and time consuming to earn it again.
- Invest in assets with relatively stable prices with no drastic price swings up or down within one year.
- Invest in financial products, real estate or companies which can generate predictable earnings, and preferably bring in Cash Inflows every month or quarter.
- Invest in assets that increase in price over time; preferably the price changes can be compared annually with the past performance, or forecasted in the future.
- Invest in a way that requires no effort from my side to manage (either mental or physical), so I can have more free time to focus on other things, such as business blogging, reading about business or working out.
- Invest in something that I can buy and hold for a very long period of time, minimum five years, ideally forever. The plan is to never sell any Assets because it will be much more expensive to rebuy them all over again due to, e.g. commission fees, agent fees, opportunity cost, TAXes, etc.
As time goes by, I do not think that my general investment strategy and investment principles, as well as attitude toward investing will change much in the short-term, medium-term or even the long-term. I am not planning to change anything in the above strategy in the far away future either because it has been working just fine for me for many years. No matter, if I manage a portfolio worth USD$1,000, USD$10,000, USD$1,000,000 or USD$1,000,000,000, I am pretty sure I would do it exactly the same.
I happen to have very low tolerance for risk, stress and uncertainty. Therefore, taking no risk, or very marginal risk, helps me to sleep better at night. And, I can avoid anxiety in that way too.
And the most importantly, because I worked my ass off in the past to be in the position where I can now afford to do things this way – invest very safely with modest returns – I want to comfortably do things this way.
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The above article represents my own views and attitudes as of June, 2021. It is not an investment advice. I am not an investment advisor. My articles have rather educational purposes rather than are advisory in nature.
Your money decisions are yours alone and I am not in any way responsible for your present or future actions. Stay on the righteous path, think long and long-term before making any financial decisions. And, remember to trade responsibly! More in DISCLAIMER.
