By Babajide Komolafe

In addition to managing debt, you must acquire assets wisely to boost your net worth. Assets fall into different categories and should be used for different purposes. The strategy is to acquire assets that add to your wealth with minimal risk.

There are assets that offer high returns but come with high risks. These include stocks of companies with unproven track records of returns or companies with weak financials. I have bought the stocks of such companies in the past.

During the stock market boom of the early 2000s, I invested N100,000 in the stock of one such company, a financial institution, and today the investment adds nothing to my net worth. If I had invested that money in a mutual fund returning 10% per year, the money would today be worth about N740,000.

Other examples of assets that offer high returns but come with high risks include cryptocurrencies, forex trading, start-ups and private businesses, and property development. The challenge is that if the risks associated with such assets materialise, you could lose your money and your net worth would be reduced.

The wisdom is that you may invest some money in these assets, but the amount must be small enough that they constitute not more than 10 per cent of your total assets.
There are also assets that offer opportunities for an increase in value but generate little or no cash flow. This means you will not enjoy the increase in value or the addition to your net worth in cash until you sell the assets.

Examples of such assets include undeveloped land, residential property that is not rented out, gold, non-dividend-paying shares, and collectibles or antiques (artworks, rare wristwatches, etc.). Whatever the increase in the value of these assets, it remains on paper until you sell.

Though increases in the value of money invested in these assets may materialise, the wisdom is that such assets should not form the bulk of your assets.

There are assets that offer both an increase in value and cash flow. These include some types of mutual funds, namely, equity-based mutual funds, balanced mutual funds, bond mutual funds and real estate mutual funds. Other examples are rental properties, blue-chip stocks (shares in well-established companies with a long history of profitability and dividend payments), and commercial real estate.

Given these categories of assets, it is obvious that building your net worth requires that most of your assets should be assets that offer both an increase in value and cash flow.