Most advice for how to increase net worth is geared toward investors with decades to save and compound wealth in the stock market.
If you’re an investor over 50, it could be too late for that strategy before retirement. But you can increase net worth by taking advantage of cycles in stocks or real estate, wealth shifting, downsizing, lowering taxes, or starting a small business.
In this post, I’ll share what we’ve learned about increasing net worth later in life after either evaluating or implanting each of these strategies over the past decade and investing for almost 40 years.
Many investors think only of their retirement account as a vehicle to increase wealth before retirement, but this limits the options. By looking at net worth instead of only investment savings, there are more potential ways to increase net worth.
Using Stock Cycles to Increase Net Worth
Stocks get significantly cheaper after every bear market. This happens about every 3.5 years based on history. (1.)
While stocks have been rising since the bear market ended in March of 2009 (as of this writing), this is unusually long bull market is not the norm.
If you’re a more seasoned investor like me, you may remember the two bear markets in the 2000s that were closer to the three year average between the tech led bear market and the bear market that began in 2007.
The great thing about bear markets is that they provide excellent opportunities to buy high quality assets cheap.
This only works for investors who:
- Are able to invest with logic instead of emotion since investors hate stocks after bear markets
- Have cash (usually money market funds) to invest
Or if you’re confused, click here to read How to Understand Your Investments.
In the video below I explain about investing in stocks after bear markets to increase net worth before retirement.
Using Cycles in Real Estate for Increasing Net Worth
Similar to stocks, real estate also goes on clearance every few years. While full blown real estate crashes are less often than bear markets, bear markets and economic events drag down real estate prices either broadly or in certain geographic areas.
Based on my own observation over the past few decades, the price of oil strongly affects the real estate market in Texas, for example.
The valuations of technology stocks affect real estate prices in Austin due to its concentration in the tech sector.
You may have noticed real estate trends in your area caused by economic or political events. We’ve found that our best real estate investments have been near our back door.
How Stock Prices Affect Real Estate Prices
Stock market declines are correlated with bear markets which are correlated with the economy. This means real estate pricing gets cheaper during bear markets, in general.
Plus, the overall pessimism during recessions and bear markets causes home buyers to wait on their purchases.
How to Take Advantage of Real Estate Cycles to Increase Net Worth
Using real estate cycles to increase net worth can be achieved in several ways.
Simply downsizing after years of rising real estate prices can significantly increase net worth before retirement for many older homeowners.
And when everyone hates real estate investing, it’s usually an ideal time to buy investment properties to flip or to rent. I personally prefer rental real estate because it can provide income in retirement and has tax advantages.
Just like with buying stocks cheaply after bear markets, real estate investors have to be able to buy based on logic and must have cash to invest.
One advantage of real estate investing is that it does not require as much of your net worth since it can be leveraged through financing. During times of low interest rates, this can make sense for many investors looking to set up extra income steams before retirement.
Using “Wealth Shifting” to Increase Net Worth
In the decade before retirement it’s more important than ever to be strategic about your net worth. Sometimes it makes sense to shift your wealth among assets.
An investor with a net worth of $ 500,000 can be much better positioned to increase net worth before retirement than someone with a net worth of $1,000,000.
Someone can have a net worth of $500,000, no debt and no home. This person is avoiding home maintenance, home financing costs, and has wealth to invest.
On the other hand, someone with a net worth of one million can have all their net worth tied up in a home that has increased in value to one million dollars. Optimistically assume there is no mortgage (which would offset the home equity in calculating net worth) but:
- There are home maintenance costs
- The home is not liquid, so this portion of net worth is not readily available
- The home is subject to a decrease in value from real estate cycles
- The home is subject to a decrease in value from bear markets
- The home is subject to a decrease in value from a recession
- The homeowner has no available cash to take advantage of cheap assets due to cycles
In this case, downsizing could be one way to increase net worth before retirement. Alternatively, if this individual wanted to invest in cheap assets, he could get a mortgage and shift some wealth into stocks or real estate with the potential for capital gains or income over a few years.
While the mortgage would increase expenses, the advantage of increasing net worth in the years following the bear market could more than offset the mortgage expense. This is especially true during times of low interest rates and after considering any potential tax benefits.
Here is an example of wealth shifting with the potential to increase net worth. After a bear market an investor could buy a quality dividend stock yielding 5%, and with a low historical PE ratio, near a several year low price with the cash freed up from the mortgage financing.
And the mortgage interest may even be less than the dividend yield!
An entire portfolio could be built from similar stocks that provide income that also have excellent potential to increase in value significantly in only a few years.
This sounds very doable without much work.
In order to do this an investor would need to:
- Think strategically
- Have good credit
- Invest based on logic instead of emotions
- Go against hard mentality
- Understand elementary stock valuations
- Follow the economy in the news
Many investors can increase wealth before retirement by shifting wealth among assets. This could apply to homes, stocks, bonds, real estate or other assets.
For more about having cash to invest after bear markets, click here to read my post entitled How Much of My Net Worth Should Be in Cash?
Downsizing to Increase Net Worth
Downsizing can lower living expenses and property taxes while freeing up some net worth to invest. It can make sense for a lot of individuals looking to increase net worth.
While I’m not against downsizing, some problems with downsizing are:
- It’s expensive, especially if you pay a real estate broker.
- It’s a lot of work
- It is often based on emotional (fearful) thinking
We have considered downsizing as our sons have gotten older and we have a large home to care for. One consideration for us that may apply to you, too, if you’ve been in your home a while is that the city has grown around us, and we love the quiet of the country.
Then we think of all the things we would like to do in our online businesses and decide to stay put a while longer since moving takes a lot of time and energy.
Click the image below to see my YouTube video on downsizing but come back because I’ve saved our favorite way to increase net worth before retirement for last!
Lowering Taxes to Increase Net Worth
One good thing is that by the time you are in your 50’s you are likely at your top earnings. Higher taxes go hand on hand with increased earnings.
I like to call taxes a good problem, but they are also the highest expense for many people.
For this reason, it makes sense to seek out legitimate tax lowering strategies.
Small business ownership and real estate rentals both have tax benefits. MLP investing also has tax benefits but it can be a hassle at tax time and may not warrant the work.
Seek out and implement ways to legitimately lower taxes. This is a way to increase net worth before retirement without adding much if any extra work.
View my related video with how to lower taxes.
Start a Small Business to Increase Net Worth
Starting a small business was our best move to increase wealth later in life. After looking at buying a couple of existing businesses, we decided we didn’t want the risk of putting our life savings on the line to secure financing to buy one, especially at our age.
We already had real estate rentals (fourplex) that were working well. But I just couldn’t resist the fact that you could reach a global market for less than $300. (Now it’s much cheaper!)
And the fact that you can leverage your time and work from anywhere led me to launch a blog to test the online waters in 2006.
Click here to read Is It Too Late to Become an Entrepreneur with 7 reasons why it’s not!
I knew nothing and made a ton of mistakes but within a few years this trial income pursuit completely replaced prior job income shortly after we launched Power Cycle Trading where Larry teaches people to trade based on his career background.
Most of the income has come from Larry teaching virtual courses but we also have income from memberships, software, digital courses and joint ventures.
I earn income from wealth coaching here at Retire Certain (and Financial Woman) as time permits, and a number of other opportunities over the past decade.
Click here to read my related post Is It Too Late to Start an Online Business where I explain different online business models.
It’s really exciting to hear about a new strategy, implement it within a week (without any corporate hurdles!), and see the results.
Plus, nothing beats the reward of a testimonial from a happy customer.
Online business only works for investors who:
- Want to work at least 5 to 40+ hours a week, depending on the model, goals and time frame
- Are happy to do tech tasks or to hire and manage outsourcers
- Like to innovate
- Accept that some things work but many don’t
- Like to learn new things
The good thing about starting an online business before retirement is that it takes 6 to 18 months to get much traction unless you buy an existing online business. This makes it ideal for someone who is still working or busy with life and wants to tip toe into the online business world, like I did over a decade ago without any risk except time.
If you want me to help you start an online business, click here.
Time Vs Money for Increasing Net Worth
Some of these strategies require little time, like investing after bear markets, while others are better for someone who wants to put in more effort.
It really comes down to how to want to use three factors, time, money and risk.
If you have more time than money, starting an online business or downsizing may be your best option to increase net worth before retirement. This is especially true if you have a decade or more before retiring.
On the other hand, if you’re working full time, wealth shifting or investing in stocks after bear markets could be your best option for increasing net worth before retirement.
Or, by using several of the strategies instead of just one of the strategies here, you can increase net worth significantly. It may even lead to an early retirement as it did for us.
The other big factor is risk. The older we get, the more we like to reduce investment risk.
- Basic stock Investing requires 100% capital, has limited upside, and low dividend income
- Real estate investing takes less capital, can have good upside, several types of risk, and decent income
- Online business has a high failure rate but takes no capital and has unlimited upside with eventual capital gains potential if you structure your business to sell one day
I’ve found that I influence the failure rate more than anything based on my level of commitment and beliefs. Fortunately, these can be overcome.
Click here to read my related post 10 Ways to Reduce Investment Risk While Building Wealth.
Increasing Net Worth Before Retirement Summary
Now you have 6 ways to increase net worth before retirement.
As always here at Retire Certain, these strategies are not your typical retirement planning suggestions. I just share here what I’ve learned and done with many lessons along the way.
Sometimes taking a different path is the only way to get where you want to be. It was for us.