Your investment portfolio is the map that guides you through the twists and turns of your financial journey. The destination you choose gives you an idea of what investments to hold for a better chance of making it.

But the climb to wealth isn't just about collecting shiny objects. It's also about knowing what assets to track along the way. You need to keep a check on which investments can help you arrive and which ones are weighing you down when life happens.

In this episode, we delve into the topic of investment portfolios once again. This time, we’re spilling the tea on what you should be tracking in your portfolio and why it matters. We also chat about how to calculate your net worth and what’s the financial independence (FI) number for a comfortable retirement.

What is an investment?

Think of an investment as something you buy with the intention of making money from it. Your investments can either generate income or increase in value over time (that’s called appreciation).

For example, buying a house could be worth more in the future because of greater demand for your location. And if you decide to rent it out, the rental income can give you a leg up and boost your other investments.

Similarly, depending on the fund or company, individual shares and exchange-traded funds (ETFs) can give you the best of both worlds. If they perform well, they can appreciate in share price (capital growth) and generate income through dividends .

What is an investment portfolio?

Now, let's talk about investment portfolios. Picture a portfolio as a fancy way of saying "collection of investments.” These can include stocks, bonds, commodities, and even cash. Some people may include property – even their own homes – in their portfolios.

All investments come with some risks. If you put all your money into one thing and it doesn’t do well, you could be in trouble. This is why diversifying with other assets is a popular strategy for increasing investing success. By spreading out your investments, you have other assets that might be picking up the slack.

But here's the thing—portfolios aren't set in stone. They change over time, just like we do. As our financial goals, risk tolerance, and market conditions change, we might think differently about how to manage an investment portfolio . It's all about finding the right balance that aligns with our goals and needs.

Investing can be a real adventure, and it's natural to want some guidance along the way. Consider seeking professional advice from financial advisors. They'll consider your unique situation and help you build a personal investment portfolio.

What’s in Tash’s and Ana’s portfolios?

Now, let's take a quick look into our own investment portfolios. While we’re at it, remember that our portfolios may look different from yours due to our personal styles and financial level.

Tash's portfolio

1. Different ETFs Tash mostly invests in Vanguard and Betashares exchange-traded funds (ETFs). Both funds cater to her preference for diversification and ease of trading.
2. Investment Property Tash has an investment property in her portfolio too. It's a great way to get extra cash from rent and maybe make more money when the property value goes up over time.
3. Cash Tash keeps some cash on hand, but not in an offset account since the interest rate is still fixed for now.

Ana's portfolio

1. ETFs Ana is also into ETFs, just like Tash. For her, ETFs are convenient and simple. ETFs allow Ana to get in on different assets without having to pick and manage individual shares every day.
   
2. One individual share For a tiny part of her portfolio, an individual share makes Ana part owner of a company. And if the share price of that company goes up, she gets a piece of that success too.
   
3. Investment Property (Sold) Ana used to have an investment property in her portfolio, but she decided to sell it. It goes to show that your portfolio can change as your investment strategy changes too.
   
4. House Ana also includes her own home in her portfolio. However, she mainly tracks its value rather than treating it as an investment in the traditional sense.
   
5. Cash in Offset Ana keeps her cash in an offset account, which can help reduce the amount of interest paid on a mortgage.
   
   

Diversifying with alternative investments

Investments don't have to be limited to traditional assets like shares and properties. There are other items or assets that people explore when considering what to invest in.

Here are some examples of alternative investments:

1. Collectible cards: Some people find value in collectible cards because of their scarcity and popularity. Tash recently met someone at a GRSC meetup who made a huge profit from selling Pokémon cards.
2. Rare sneakers: Believe it or not, sneakers have become an emerging alternative asset class. Limited edition or collaboration sneakers can fetch high prices in the resale market. For example, the Dior x Air Jordan 1 High retailed for $2,000 (USD) in April 2020 and resells from around $6,000 to $8,000 (USD) as of this writing.
3. Other Collectibles: Rare Lego pieces and sets, art, jewelry, and even classic cars can also be considered investments. It all depends on their potential for appreciation and demand from enthusiasts.

Is it important to track your net worth?

Net worth is like a financial report card—it shows you where you stand in your wealth journey. It's the difference between what you own (assets) and what you owe (liabilities). When you crunch those numbers, you'll know your personal net worth.

Let's throw some numbers at you. In 2019-20, the average net worth for Aussie households was around $1.04 million. That's a hefty number! And the median household net worth? It was approximately $579,200.

These figures come straight from the Australian Bureau of Statistics (ABS) . The statisticians take into account things like real estate, shares, and superannuation. Then, they subtracted debts like credit cards and home loans.

Sure, knowing your net worth can be a fun way to track your financial progress. But let’s face it: not everything is in our control. We can control how much we invest, but we can't control what the investments will be worth someday. Instead, focus on your saving habits and increasing your income —it can make a bigger difference in your future.

What assets are included in your net worth?

Let's get into the nitty-gritty of tracking your net worth. What assets should you include?

Here are a few things to consider:

Bank accounts

Start keeping tabs on all your bank accounts, including savings, checking, and investment accounts. It's like having a pulse on your cash flow.

Property value

If you own a house or any other property, it's worth keeping an eye on its value. But here's the catch: your home isn't really an investment that makes you money. More about that in the next section.

Investments

Dipping your toes into the world of ETFs and shares? Include them in your net worth calculation. While (like anything) they carry risks, these investments can play a big role in growing your wealth.

Superannuation

Ah, good ol' super! For Aussies, that's the money your employer pays for your retirement. Superannuation is one of the keys to comfortable retirement, making it an essential part of your net worth.

Debts

Now, let's get real and subtract those debts from your assets. Subtract any outstanding balances you owe, like credit card debt or home loans. You'll then get a true measure of where you stand. We’ve prepared a guide for dealing with debt emergencies that you can use along with the professional advice of a financial counsellor.

Is your house an investment?

The short answer is: well, not really. Buying a house is more about creating a feeling of security and Aussie success for yourself. We do it for peace of mind, and the satisfaction of fulfilling the Great Australian Dream of home ownership.

If you're thinking solely about making money, you might want to diversify. Investing everything in one asset, like your home, can be risky. It might be a smarter move to spend less on your house and invest in other income-generating properties or assets. (For a deeper dive on how you can mix property investing into your investment portfolio, read: “ Property investing meets FIRE ”)

How to track your net worth

There are a bunch of ways to keep an eye on your net worth. Some investors love using spreadsheets, while others prefer handy apps. Find what works for you. And if you're in a partnership, you can combine your net worth tracking with your partner. This will give you a complete picture of your financial journey as a team.

What is your FI number?

Ever wondered how to achieve financial independence and retire early (FIRE) ? It all starts with understanding your FI (financial independence) number. This is the amount of money you need to save up so you can live comfortably in your retirement years.

Start by figuring out your yearly expenses – all the things you need to pay for to keep the good times rolling. That includes your rent or mortgage, groceries, utilities, and anything else that keeps your life ticking. Once you've got that number, multiply it by 25. That's your FI number, according to the Trinity study .

If you’d like to get more granular, try Pearler’s Financial Independence Calculator .

Increasing your savings rate

A big part of retiring early is increasing your “savings rate”. Basically, it's the percentage of your income that you stash away for saving and investing. Here’s the simple math for calculating your savings rate: divide your savings amount by your total income. The higher your savings rate, the faster you'll grow your portfolio and reach financial independence.

Now, it's true that the path to FIRE benefits from a dash of privilege. The FIRE dream might seem easier for those with higher incomes. This won’t be the case for everyone, given the median Australian employee earned $65,000 in 2022 . If we break it down, that’s $78,800 for full-time workers and $32,400 for part-time workers last year.

But this doesn't mean FIRE is a closed door for many. No matter where you stand, you can still take control of your financial destiny. It's all about finding strategies that suit your situation and working with what you have. Practice conscious spending, save more, and explore opportunities to increase your income.

With determination and a solid plan, you'll be on your way to living life on your own terms.

Actionable takeaway from this episode

And with that, we’ve covered the essentials of what to track in your investment portfolio.

Now it's time to put your newfound knowledge into action. Pick a metric to track—net worth, spending habits, or savings rate. Keeping an eye on your progress will give you insights that'll level up your financial game and help you make wise decisions.

You know the drill—give the full episode a listen to catch all the details about what we personally keep tabs on in our investment portfolios. And of course, we're here to cheer you on and provide guidance along the way.

Happy investing!

Tash & Ana