4. Expand the Pie
This is a theme we’ve hit on time and time again here at the site. The easiest way to grow your net worth besides cutting expenses is to generate more income from non-correlated sources. Imagine you are a steel worker and your wife is a public school teacher. You could start a small business from your home to generate just enough to pay the mortgage each month, freeing you from total dependence on your jobs. One couple that I heard from actually used side jobs from the Internet to buy their cars.In fact, this is a great way to expand your portfolio. When I was younger, one of my favorite games was to set a goal. For instance, you might say, “I’m going to buy fifty shares of Wells Fargo at $28.11 per share, paid for entirely by side projects that don’t come out of my paycheck.” To do that, you would have to make just over $1,400 after tax and commissions. You wouldn’t believe how quickly those things add up, or how intelligent you can become in terms of ways to ethically make the money. If you could find a stock that grew 9% per annum with dividends reinvested and did a project like this every year, you’d add almost $175,000 to your portfolio over thirty years. It’s vital you begin thinking like that.
5. Use the opportunity to buy depressed assets on the cheap
Recessions can be a marvelous opportunity to pick up cheap assets. You’ve got to be careful here because you don’t want to “appear as an undertaking dancing during the plague,” as one investor put it, but it is a time that you can advance your own family’s interests if you have been disciplined and blessed enough to have available cash and a strong balance sheet.Find great quality companies that have talented management teams, durable competitive advantages, high franchise value, strong financial statements, good returns on capital, and the opportunity for future growth (although if management is paying out earnings in the form of share repurchase and cash dividends, the latter isn’t necessary with a low enough price-to-earnings ratio.)
This theme is also true if you own a business or firm of some kind. When competitors are reeling, sometimes it pays to go on the offensive, aggressively grabbing profitable business and consolidating market share. When times recover, this could result in torrents of cash piling into your office. John D. Rockefeller did just this thing when he bought up nearly all of the rival refiners in Cleveland during a time of crashing crude prices, putting him on trajectory to building one of the greatest fortunes the world has ever known.
