3 tips for building a portfolio that can survive and thrive no matter what happens

Can you just rely on the market to grow your wealth?

Because one thing’s for sure, the market doesn’t care about you. Economic and political trends come and go and the market cycles through it all, leading your wealth around by the nose. Except that it doesn’t have to be like this.

If you play your cards right, your portfolio can grow no matter what goes on in the market.

Here’s what you have to do:

1. Focus on positive cash flow

True wealth comes in the form of money that you can hold in your hands. This is why cash flow is critical in any investment portfolios. Messing around with negative gearing requires you to gamble and hope that the future will be all right.

If you’d like to play it safe, always go with properties that offer high yields. These are the properties that generate positive returns after you take out all the costs.

How exactly do you identify positive cash flow properties? Start by multiplying the weekly rental income by 52 to get the annual number. You can then divide that by the property’s purchase price to get the gross yield.

To calculate the net yield, subtract all the costs from the annual rent before dividing it by the purchase price. These costs may include mortgage payments, maintenance, management fees and other relevant costs.

If you get a positive net yield, the property is worth considering. It’s a property that pays for itself and leaves you with some extra cash for emergencies and profit-taking.

On top of that, the idea is to look for properties that offer high-enough yields for your investment goals.

2. Choose the right area

Regardless of the overall market, there are always areas that perform well. Even with the recent downturn, there are areas that were and continue to be thriving.

This is the power of choosing a growth area for your investment. If you’re able to find an area that’s set to boom, you can just ride the growth and watch your wealth go up.

This would allow you to leverage your initial deposit with a good property. You can use this to buy more cash flow-positive properties and take advantage of magnified compound growth.

Of course, you’ll have to get to work and be diligent in searching for the perfect area. But it’ll all be worth it down the line.

3. Have multiple exit strategies

A de-risked portfolio doesn’t mean that your properties are completely risk-free. It only means having a contingency plan to outsmart economic and political trends.

To do this, you need to have a few exit strategies.

Simply put, you need to choose properties that offer value-add potential. That’s potential for subdivision, renovation, adding a granny flat, and other things that can add value to your property.

This adds a layer of protection over your portfolio. You can mitigate risk if need be, or maximise profit.

As they say: Start with the end in mind.

Before you buy a property, make sure that there’s a way to protect yourself should something go awry.

Bonus tip: Don’t do it alone

As you can see, there are quite a number of things that you can do to protect your portfolio. And the above is just a start.

When in doubt, it’s best to have a team of professionals by your side. They know the market inside out and can offer valuable insight beyond your current knowledge or expertise.

By Glenn “Goose” McGrath, dashdot