This article is about my investment principles which are fairly simple. It is all about making safe investments for my money and stable growth.
Protecting the capital has always been more important to me than achieving the highest returns. If I could earn risk-free 4.5% annually while protecting 100% of the invested capital instead of a possibility of earning 9% annually with a 50% chance of losing a big portion of my capital, I would take the first option without hesitation.
My general assumptions about life and growth
First, build slowly but gradually because life is a marathon, not a sprint. To be where I am now, it took me a long time to build. I had spent 6 years at the university to get my two BA degrees and two MA degrees. And more than 10 years of continuous full-time employment. Me and my wife have been growing our family wealth internally using our own resources. We like our freedom, so we can do what we want anytime we want. When you develop your life internally, it is usually way slower but much safer. When you develop using external resource, you can grow faster but it is a riskier option. But remember that the borrower is always a slave to the lender.
Second, try to increase many things by a little bit at the same time, rather than one thing by a lot. It is difficult to bump something fast by a large percentage in a short-period of time, e.g. get a salary increase of 100%, or increase the rent your tenants pay by 50%. It’s just not going to happen. Instead, when you have many income streams, bump each of them by a smaller percentage, e.g. 5% or 10%. It is easier to negotiate smaller increases, and more possible to get it approval or done. In the end, getting smaller increase on many income sources, will give similar outcome comparing with getting a large increase from one source.
My investment strategy for stability and safety
In general, my investment strategy is reasonably conservative. I do not consider it to be extremely conservative. At this stage of my life, me and my wife are focused on systematic and continuous wealth building by earning money from active income and investing our Net Savings to earn passive income. So, on one hand, we are growing our wealth by adding money which we save from our paychecks every month, and on the other, our investments in revenue-generating assets also earn money for us every month or quarter. 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.
NOTE: 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 general investment principles for stability and safety
I like spending money on assets that meet all the following criteria that I consider indispensable when investing:
- 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 solve human problems, farmland can grow food, etc.
- Financial instruments that are mainly risk-free, so there is not 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. Never lose your money, because it is very difficult and tiring to earn it again.
- Relatively stable with no drastic price swings up or down within one year.
- Generate predictable earnings, preferably bring Cash Inflows every month or quarter.
- Increase in price over time, preferably the price changes can be compared annually with the past performance, or forecasted in the future.
- Require no effort from my side to manage (either mental or physical), so I can have more free time to focus on other things.
- I can buy those assets and hold for a long period of time, minimum five years, ideally forever. The plan is to never sell any assets.
I have managed the whole family wealth in the past using the above principles, so I will just continue acting alike, or very similar, in the near future. It does not matter, if I manage a portfolio worth USD$10,000, USD$1,000,000 or USD$100,000,000. I am pretty sure I would do it exactly the same. I have very low tolerance for risk, stress and uncertainty. Taking no risk, or very marginal risk, helps me sleep better at night. And, I can avoid anxiety in that way too. Honestly, because I can afford to do things this way – invest very safely with modest returns – I want to do things this way.
As time goes by, I do not think I will change much in the above strategy in the far away future because it has been working just fine for me. If I had more spare cash, more free time and lot of extra energy, I would just build a bigger snowball by investing in four passive income-generating assets that I consider the greatest. They include residential real estate, bank deposits, online business and dividend stocks.
