A big portfolio.

It’s what we all want. Unfortunately, it tends to take a while to get there.

So, to help speed up this process, I’ll share a bunch of methods for growing your portfolio faster. None of this will be the usual ‘five stocks to buy for 2023’ nonsense. No, I’m talking about things that are much more powerful and reliable than riding a hot stock tip.

These are actions you can take to level up your finances, giving you more control over your wealth, and therefore, your future freedom. But you might be skeptical, which is usually a healthy reaction when investing. Let me explain why the payoff here is much higher than finding those elusive golden investments.

Why personal finance beats performance

Many of us have been convinced that the way to wealth in the share market is through lottery-type returns. This narrative has taken root for multiple reasons. It sounds sexy. We hope we’ll be the lucky ones. And we also want something that’s zero effort, rather than having to do something to build our wealth faster. We’re all wired like this!

But let’s look at the numbers. For example, we’ll take two investors who have the same sized portfolio: $100,000.

Investor A decides to grow their portfolio faster by taking control. They focus on their finances to earn and save more. This allows Investor A to grow their portfolio faster, by an extra $10,000 per year.

Investor B decides to grow their portfolio faster by looking for better investments. They focus on researching what stocks and ETFs to invest in, and following their favourite gurus. Let’s say they genuinely develop greater skills and can achieve better performance.

Investor B goes from earning a 7% annual return to a 10% annual return. We’ll be generous and assume they can continue this outperformance. While this doesn’t sound like much, it’s an outstanding achievement to beat the market by a few percent per year.

The problem is, investor B’s performance means his $100,000 portfolio will return $10,000 per year, instead of $7,000 per year. This $3,000 of additional performance pales in comparison to Investor A’s extra $10,000 of progress made through their finances.

As I’ve said before, adding to your investments is easier, more repeatable, and more reliable than adding to your returns. It’s also far more powerful unless you have a truly enormous portfolio or it’s simply not possible to earn or save any more than you do now (which is rare).

Boost your savings rate

The best place to start looking for more money is by seeing what we do with our existing money!

Is money leaking out of our lives in certain places for very little benefit? If so, there’s a huge opportunity to question our current expenses. Is each expense necessary? Could some be reduced, or even eliminated?

While we might not like to admit it, there are usually plenty of cushy areas in our current spending that we can improve if we want. Maybe it’s a restaurant habit we’ve picked up. It could be that new car we bought because our previous one was ‘getting kind of old’.

The point is to start reflecting on our choices and developing the habit of questioning ourselves. “Is this purchase or lifestyle habit really improving my life? Or should I put this money towards financial freedom?” Think about which is more important to you.

Increase your earnings

Let’s say you’re already running a pretty tight ship with your personal finances. There isn’t much else you can save on, or you would simply prefer to keep your current lifestyle the same. In this case, you’ll want to focus on the other big lever: growing your income.

These days there are lots and lots of ways to boost your income. Some of which, frankly, I find a bit scammy (though slightly hilarious). Example? Take a course on how to sell courses, so you can sell courses to other people who want to learn how to sell courses. I mean, come on!

Luckily, there are plenty of other honest and time-tested methods to boost your income, like the following:

• You can work more hours at your current job by doing overtime or extra days. I did this on my own FI journey and it helped grow my portfolio much faster than I could’ve otherwise.
• You can move to a different employer or industry for better pay. The fact is, some companies just reward their employees more than others. And some industries pay better than others, even for roles that require a similar skill set. Check out the job market for alternative options on sites like Indeed, Seek, and LinkedIn.
• You could even do more unusual things like pet sitting; Airtasker; renting out your car or parking space; or even getting a housemate. Given low rental vacancy rates, this will also provide a much-needed addition to the rental supply. There are tax implications if you’re a homeowner (and with any money-making activity), so do your research before diving in.

Turn windfalls into wealth

The second half of the year is often when people receive windfalls of various kinds.

A nice tax return. An end-of-year bonus from work. And if you’re younger, you might even be receiving cash as a Christmas gift from your parents.

But money is a funny thing - it has an odd way of disappearing on us. By that I mean we unconsciously make it disappear by finding something to spend it on! So, if we're not careful, these windfalls will slip through our hands. When a dollop of extra cash comes your way, make sure you transfer most of it to your investment account. That way, you can quickly secure it before it vanishes.

You can also create mini-windfalls by embracing some old-fashioned minimalism. In practice, this means simplifying what you own and selling things you don’t really use. Those old phones sitting in a drawer somewhere. That bike you stopped riding. The exercise equipment you’ve moved on from.

Maybe you even take this one step further and sell your car to use public transport and Uber instead (or that bike!). If you live in a more convenient location, you may not even need a car at all. Everything non-essential we own is a potential source of cash to buy investments, instead of having it doing nothing.

Consider using leverage - and if it's right for you

Now, this one is definitely not for everyone. But borrowing to invest definitely achieves the goal of growing your portfolio faster. By taking on debt to invest, you are essentially bringing forward your future purchases to today (possibly years’ worth). And while it can be a profitable approach, it’s not guaranteed to pay off.

Keep in mind, that the interest rate you pay is critical. Yes, if you borrow to invest in an income-producing asset, the interest is generally tax deductible. But any extra dollar paid in interest eats into how profitable this exercise is.

Unfortunately, investment returns are unable to be forecast with any accuracy. For this reason, all we can do here is run with a conservative long-run average. That’s why you’ll have to make your own decisions here.

It’s worth noting that this strategy made a lot more sense with interest rates for mortgages at 2% and margin loans at 4%. But not so much with rates now a few percent higher. Regardless, I still feel the need to at least mention this option.

Final thoughts

Now, I’m sure some people will just think: “Why not do both - increase our income/savings and improve our returns?”

Unfortunately, it doesn’t really work that way. It's simply not easy to find which investments are going to outperform in advance. If it was, index funds would be a tiny little niche corner of the investment world, reserved for lazy people, instead of a key pillar in the industry as they’ve become.

Trying to juice returns is far less dependable, and as we’ve shown, even less impactful than strengthening our finances. I hope this article empowers you to take control and grow your portfolio as we move into the new year.

Until next time, happy holiday season, and happy long-term investing!

Dave