‘Making money, even in your downtime’: Six ways to build wealth in 2022

As 2022 rolls forward, many are still steadfast in their resolution to be healthier, save better and be richer. However, as interest rates continue to disappoint, savings will not be making anyone rich anytime soon, but Mr Rothschild shared six ways exclusively with Express.co.uk that might work even better.

Many picture being wealth as having lots of cash on hand and even more in savings but in the modern financial world that is no longer the case. 

Studies have shown that the average billionaire actually only holds roughly one percent of their net worth in liquid assets like cash. 

This could be due to the fact that as interest rates continue to dip far below inflation rates, keeping money in cash is simply another form of losing value. 

The vast majority of the wealthy tend to keep their wealth in assets or investments that will keep up and go ahead of the inflation rate and this is what keeps them rich. 

Former CEO and chief advisor to global investment firm BlackRock Asset Services, Mr Rothschild shared his six key tips to growing wealth like the wealthy do in 2022.  

Build equity 

Mr Rothschild explained: “Creating wealth is about owning equity in a business. Whether this is in the form of stocks, owning your own successful business, part of a product, or a slice of IP such as a piece of art or a book, equity is key. Building equity means you are constantly making money, even in your downtime.”

It is important to note that with every investment there is capital at risk and no outcome or return can be guaranteed. 

Many fear investing because of these harsh truths, but Mr Rothschild revealed some formulas that could put investors’ minds at ease: 

“For example, the return on equity (ROE) ratio will tell you how much money the company in question makes off the invested capital. For example, an ROE ratio of 130 percent means that for every pound you invest, they will earn £1.30. The higher the ROE, the more profitable that company is, and the more worthwhile a stake will be for you.”

He continued: “Other key ratios to look for that will help you better evaluate a company are Sales Growth, Gross Profit Margin, Net Profit Margin, Liquidity, Shareholder Equity, Debt to Equity, Operating Cash Flow, Operating costs, and a company’s Earnings Before Interest-Taxes-Depreciation-Amortization.”

Make money from compound interest

Compound interest essentially adds interest onto one’s initial sum and the interest they have earned since, generally building wealth quicker and easier than simple interest used in most savings accounts. 

Mr Rothschild shared: “Investing in the stock market is the simplest way to build long-term wealth as it is effectively a compounding machine, as long as the stocks you pick perform consistently.”

DONT MISS: 

Find asymmetric investment opportunities

Mr Rothschild explained this would see investors choosing opportunities that provide more pros than cons, where the likelihood of a good return outweighs the potential risk.

“These types of investments support the philosophy of retaining sufficient cash to once side to see you through in case an emergency strikes and you are forced to liquidate at an unfortunate time, forcing a loss.”

Invest in the stock market 

Investing for the stock market can seem daunting, and investors are advised not to invest more than they can afford to lose. 

That being said, it has been notoriously profitable for wealthy names like Warren Buffett and can be a simple way for investors to align their money with their values by supporting companies with initiatives they resonate with.

Mr Rothschild noted: “Understanding the risks is key, however. You will face two main risk types – unsystematic risk and systematic risk. The latter is linked to macro events such as political changes and recessions, or pandemics, while the former is a one-off affecting a specific business or sector.”

While unsystematic risk can’t usually be predicted or controlled, investors are usually advised to diversify their portfolio by having a variety of investments so they can offset any industry-specific disaster. 

Mr Rothschild added: “Either way, investing in ETFs or mutuals rather than individual stocks is a better way to minimise risk allowing you to spread your investment with minimal costs.”

He cautioned: “The kinds of mistakes that I’ve seen in my years investing include clumsy attempts to time the market, it doesn’t work that easy and you need to be glued to a trading platform at least 11-12 hours a day 5 days a week to cover international markets. You then end up becoming attached to stocks providing a poorly thought-out asset allocation.”

Think about the crypto space

Mr Rothschild began: “This is not for the faint hearted and should only ever be a small part of a diversified portfolio. 

“Cryptocurrencies have moved far beyond the initial expectations of many economists and analysts who dismissed them as fool’s gold. Of course, it’s a volatile high risk sector, and cryptocurrencies are unstable in their value. However, Bitcoin, Ethereum and many other contenders have shown that crypto investment can be a viable way to grow your wealth.”

The cryptocurrency market has taken the world by storm despite being relatively new to the space and the offshoots of this market now offers a great variety of ways to create wealth. 

Mr Rothschild explained the array of routes one can take in the crypto space: “Trade in the market in the same way as you would other alternative assets or invest in a mining pool.

“Invest when prices are low or when they have a large dip and wait for the next rise, this works well for cryptos.”

He advised: “When you make gains take some of the profits and invest in alternative investments because governments are planning to introduce the Crypto Yen, Crypto Euro and Crypto Dollar as well as many others and at some point heavy restrictions or bans are likely to be introduced, this would heavily reduce the value of Cryptos overnight or could even render some of these exotic investments worthless.”

“Though it is hard to give solid predictions, average investments into Bitcoin saw a 200 percent per return over the last year according to the latest IntechOpen report. Cryptocurrency is therefore a potentially an extremely profitable investment. However, I would recommend investing no more than five percent to 10 percent of your investment portfolio into cryptocurrency as it is a high-risk volatile asset class.”

Invest in real estate

Property and real estate has been a core pillar of investing for decades, and it continues to offer attractive returns for investors buying in the right areas. 

However, while many only look to the end sale for their returns, Mr Rothschild suggested some other ways investors can increase their returns long before they ever sell or rent the property. 

“For example, refinance your original loan at a lower rate of interest. By lowering the cost basis on the property investment, you will increase the amount you make. For residential investments, location location location is key. This is what will determine how much a piece of land or a property will appreciate, desirability and limited supply drives higher growth.

“Rather than selling, you can also grow your wealth by renting. Real estate profits from rental income are regular, largely reliable, and consistent. Whether you choose to buy and hold while renting out the properties, flip the investment or choose the increasingly popular option of a holiday or Airbnb rentals, there are always ways to grow your wealth through real estate.”

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