When Your Portfolio Makes More Money Than You, What Will You Do?

JC Project Freedom

In terms of liquid assets, the first million is the hardest to acquire. Of course, it is. You have to work hard for it. We took 10 years to cross the first million which is around 2017. The 2nd million came in less than half the time of that first million dollars which is around August 2022. Currently, after another 2 years, we are close to 2.7 million. We believe the third million can be achieved by next year.

When you join the two-comma club, things happen more quickly. Your money is now working harder than ever, growing your net worth more with each passing year while your input from the money you earn probably hasn’t changed all that much.

Disclaimer, before you reach the two-comma club, you need to have a high savings rate and increase your employment or business income. I have been a fan of mixed vegetable rice for my entire adulthood, I had it when the price was S$2.20 for 1 meat and 1 vegetable. With the rise of inflation, it costs S$3 for the same. I have not been driving for close to a decade after scrapping my old car, the family of four has always traveled mainly via public transport. We only use Grab or taxi when we travel to and fro the airport or attend special family events. If I hadn’t been saving diligently all along, I would not have had the funds to benefit from the stellar returns that the stock market has given us.

Essentially I am talking about the growth in your net worth that comes from your portfolio growth in value. I’m referring to the total return that your portfolio gives you in a given year. It is the amount that the value of your investment portfolio increases not from new contributions but from an increase in net asset value and reinvestment of any dividends.

If you play your cards right, at a certain point in your career, you will find that in some or most years, your portfolio contributes more to your net worth growth than your job does. When that happens, you start to question why you are working or working as hard as you do.

I did.

A diversified portfolio that includes multiple asset classes will increase the odds that your sizable portfolio outearns you more often than not. We have non-liquid assets which are locked away for now. One of the key components will include our Singapore pension system CPF which will serve as an annuity in our later years. There are 2 private properties which we intend to recycle the assets to combine into an own stay unit in the next 2-3 years. We are planning to invest and grow a bond ETF portfolio.

What does it mean when your investments make your net worth grow more than you can most years?

It is both a wonderful and deflating feeling. On one hand, you realize that you could likely get by just fine without the job. On the other hand, it can make you feel like you are spinning your wheels at work. I don’t want to have more responsibility at work and I am not aiming for the director role. I want to have more time for myself, my family, and my friends.

You put in all those hours and go the extra mile only to have the contributions you can make to your nest egg pale in comparison to the growth of the nest egg itself. It is a first-world problem of the highest order. It may have questioned the role of paid work in your life going forward. Recently, I was clearing my annual leave. My director made me work, and attend meetings throughout the entire week. I was quite irritated by this.

You accumulated this $3 million portfolio by putting aside $100,000 a year on average.

In a good year, the market gains 10% and your nest egg contributes $300,000 whereas your full-time job adds 1/3 of that amount which is $100,000.

In a very good year, the market gains 20%, and your portfolio is up $600,000 without you lifting a finger.

You realize that your future net worth depends far more on market returns than whether or not you are working. There are many reasons to work that have nothing to do with money, but at some point, you realize that the money you earn does not impact your financial future much anymore.

At some point, you will have a hard time keeping up with the work ethic that your investment portfolio seems to have. If you want your money to work for you, put in the work yourself, save a substantial chunk of what you earn, build a diversified portfolio, and reap the benefits.

Eventually, your hard work will pay off, and you won’t have to work so hard to grow your net worth. Your days of pulling weeds and filling the watering can are over. You can sit back and watch your garden grow.

Compound interest is a wonderful thing.

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