Enlightened Capital Blog

Building wealth in today's challenging environment

Building wealth in today's challenging environment

Investors only have a few options available to build wealth in this challenging environment with lower expected returns for most asset classes. Additionally, there is a ton of uncertainty related to the economic impacts of COVID-19. As I talked about in 3% is the new 4% for Retirement Planning, to safely withdraw $100,000 per year in retirement you need a $3.33 million portfolio using a 3% withdrawal rate compared with a $2.5 million portfolio using a 4% withdrawal rate. Unfortunately, a larger investment portfolio is now needed to comfortably retire, compared to the recent past. This is due to historically low interest rates and elevated equity multiples, reducing the expected returns for bonds, stocks and real estate, going forward. Life expectancy continues to increase, so you should expect to spend more time in retirement than previous generations, which further increases your need for a larger investment portfolio.

So how can you build a larger investment portfolio and ultimately build greater wealth? Like most worthwhile things in life, the answer is simple but not necessarily easy. Either you need to save more money by increasing your income or reducing your expenses, or increase your expected investment returns. In this multi-part series, we’ll look at a wide variety of options to build greater wealth and achieve your financial goals. Ultimately it is up to you to decide which of these wealth building strategies is most appropriate. Most likely you’ll want to choose several of these strategies. Some readers are comfortable taking on more investment risk, while other readers will want to scratch their entrepreneurial itch and start a side business. It’s also important to point out that these strategies can take years to generate serious wealth, none of these are get rich quick schemes. Instead these are long-term strategies which will benefit you more over time due to the power of compound interest!

Naval compound interest

Let’s briefly look at the key strategies to build wealth in this environment. In later posts we’ll dive into much more detail on each of these strategies.

Increase your income

• Negotiate a raise with your employer or join a competitor in your field. I’ll talk about my own career progression and how switching jobs every few years has allowed me to increase my income roughly 18% per year since 2009. This has allowed me to double my income every four years on average. I’ll teach you the strategies I’ve used to parlay an entry level job into a rewarding and lucrative career.

• Switch careers entirely. Another great option for increasing your income. Especially if you are bored with your current career. I put together a career guide highlighting the highest paid careers. We’ll also look at the work life balance and job satisfaction for these high-paying careers, so you can make the most educated decision about which career to pursue.

Create a side business to generate additional income. Finally, we’ll look at creating a side business or side gig to generate additional income using your skills and interests. This is a great way to make your income more robust, especially with all the uncertainty we face around COVID-19. I have numerous examples of friends and family who have built sizeable businesses and income streams while continuing to work full-time.

Reduce your spending

• How increasing your savings rate will speed up your retirement date. We’ll focus on why saving money is so important, and the quick math showing how increasing your savings rate will reduce the number of years you have to work.

• Strategies to reduce your spending in the major expense categories. We’ll look at the biggest expense categories for the typical American family, and strategies to reduce your spending in each of these categories.

• Set a goal for what percent of your income you will save every year. Ultimately it is important to have a goal for what percent of your income you will save, to keep you on track and motivated along your path to financial freedom. 

Increase your expected return 

• Increase your allocation to equities and real estate and reducing your allocation to cash and fixed income. With the Fed not expected to raise interest rates until at least 2022, we are going to be in a low interest rate environment for years to come. As a result, cash and fixed income will face lower expected returns and investors will have to allocate more and more of their portfolio to equities and real estate.

Thanks for reading and please sign up for my blog!

You can follow Enlightened Capital on twitter here!

No thoughts on “Building wealth in today's challenging environment”

Get the latest information

Subscribe to the Enlightened Capital Blog and get the latest information sent to your inbox.

ec logo design 1247w 669E38 twitter social media icon design template vector 22339994


Disclaimer: Enlightened Capital is for entertainment purposes only. Nothing we write here can be considered advice or guidance for investment decisions or, for that matter, any other decisions. If uncertain, always consult an investment advisor and/or accountant.

Enlightened Capital makes no representations as to accuracy, completeness, currentness, suitability, or validity of any information on this site and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Furthermore, Enlightened Capital assumes no responsibility for the accuracy, completeness, currentness, suitability, and validity of any and all external links you find here. Enlightened Capital assumes no responsibility or liability for postings by users in the comments section.

© 2021 Enlightened Capital. All Rights Reserved.