While I was able to increase my Net worth by 17% last year, I still think that I could have done better. Some people don’t think that net worth matters but I truly believe that it is a good indicator of your financial situation. Keeping track of your net worth year after year will show you if you are actually creating or destroying wealth. The simplest way to increase your net worth is obviously to spend less and earn more. However, there are ways that will help you achieving your goal faster. This series of post has been written to concretely increase your assets and decrease your liabilities.
Invest in registered accounts
If you live in a country where taxation rate is really high (i.e. Canada 😉 ), savings on taxes will become a major issue while increasing your net worth.
In order to optimize your tax return, you should consider moving most of your investments towards registered accounts. In Canada, contributing to an RRSP account (2 months left to do it for year 2008) will reduce your taxable income in the same amount.
This means that if you make 60K and do an RRSP contribution of 5K, your taxable income will be down to 55K. Therefore, the Government will reimburse taxes that were paid on the 5K (at your marginal tax rate).
In the end, simply by moving your investments into a RRSP account, you will improve your net worth. However, you must be aware that this operation triggers capital gains (by moving into a registered account, you are deemed to have dispose the shares at it fair market value), but will not triggers capital losses to be used against other capital gains.
As of January 2009, you can contribute up to 5K per person per year into a Tax Free Savings Account (TFSA). This won’t give you any money in returns, but will allow your investment to grow tax free.
There might be an investing opportunity by leverage on a low interest debt and invest into high paying dividend bank stocks. However, this is a risky leveraging strategy as interest charges are not tax deductible if the money is invested into a TFSA.
Get tax credit on specific investment vehicles
If you are investing in a long term perspective, you also have to option to invest into specific funds sponsored by the Government. These funds will invest your money into local or national small businesses in order to give them loan, buy shares or save them from bankruptcy. You also have the possibility to invest into mining companies that may or may not find something while digging.
Those are obviously riskier investments and you should be careful about the returns you will get over the long run. However, the tax credit is pretty interesting and can be invested anywhere.
Decrease your MER’s
If you invest in mutual funds, you have to make sure of 2 things; do you have duplicates (i.e. 2 mutual funds invested in the same field) and are you paying high MER’s.
Management fees are recurrent and absolute; investment returns are not. Therefore, if you are able to reduce your MER’s, your investment will grow faster. By investing into a bond ladder and carefully choosing ETF’s or index funds, you will be able to considerably reduce your investment management fees.
There are still plenty other ways to increase your net worth, but I think it is enough for today 😉
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