Asset Net Worth: Why it matters?

Pillar Wealth Management works with investors interested in investing $5 million to $500 million in liquid assets. We can help you with portfolio design, tax minimization, asset allocation, estate planning, and other activities that influence your net worth. Book a consultation today and speak to our wealth managers!

In this blog, we will answer important questions like how do I calculate net worth? What are types of net worth? And what is the net worth of the company? Let’s begin.

What Is Net Worth?

Your asset net worth is the total value of the assets you own, minus your liabilities. It is a measure of financial health and can help you see your current financial position. To the uninitiated, an asset is an item you own having monetary value. A few examples of assets include stocks, cash, cash equivalents, account receivables, commodities, etc. On the other hand, liabilities refer to the financial obligations you owe to other parties. Paying off these obligations can deplete your financial resources. Some of the most common examples of liabilities include mortgages, car loans, credit card debt, accounts payable, etc.

To learn more, book a free appointment with Pillar Wealth Management!

What Are The Different Types of Net Worth?

Are you wondering what are types of net worth? Net worth is usually calculated for individuals and companies. You can also calculate them for countries. Let’s take a look at the two basic types of net worth:

Individual Net Worth

Your individual net worth refers to the value of your assets you have subtracted from all your liabilities. Individual net worth is influenced by liabilities such as:

• Credit card balances

• Mortgages

• Car loans

• Student loans

• Personal loans

The assets considered here usually include their checking account balance, savings account balance, real estate, the value of their investment securities (stocks, bonds, mutual funds, etc.), jewelry (silver, gold, platinum, etc.), the market value of your car, and more. You can sell a portion of these assets to pay off your liabilities. Whatever remains would count as your net worth.  

Business Net Worth

If you were wondering what is the net worth of the company, then this should answer your question. Business net worth is also known as shareholders’ equity. You can view the net worth of a company on its balance sheet. As you may be aware, a balance sheet shows a company’s equity. It is equivalent to the difference between the company’s total assets and its total liabilities.

Creditors and investors will inspect the net worth of a company to determine its financial health. Generally, if a company’s assets exceed its liabilities, then a lender is more willing to provide it with the funds they require. This is because they know that the company has the necessary assets in place to pay off its debts.

Profitable companies tend to register their earnings in the form of rising net worth. However, some of these earnings may also be distributed among their shareholders in the form of dividend payments. In the case of public companies, rising net worth will indicate growth in earnings and profitability. The company’s stock prices will also increase.

How Can You Calculate Your Asset Net Worth?

At this point, you’re likely wondering, how do I calculate net worth? As mentioned earlier, your net worth is the difference between your total assets and total liabilities. You can calculate it by preparing a list of your assets, followed by a list of your liabilities. Once you have these values, you can subtract your assets from your liabilities and get your total net worth.

Your net worth can be either positive or negative. If your assets are greater than your liabilities, then it is positive. An increasing and positive net worth indicate that you are in good financial health. However, if your liabilities are greater than your assets, then your net worth will be negative. Decreasing net worth can be worrying. You need to be carefulhere and make a plan that can help you reduce your liabilities while your assets remain the same or increase. You can also try and increase your assets while your liabilities stay the same or reduce in value.

It’s important to remember that when you are calculating your personal net worth, you need to account for the current value of the assets, as well as your current debt costs. For example, suppose that you bought a car 2 years ago. When you are accounting for this asset, you need to consider its current value and not the value it had when you first purchased it. The same applies to your debt. If you signed up for a mortgage 3 years ago, then you need to consider the value it currently has after the mortgage payments you have made in the past.

Examples of Calculating Net Worth

To understand how you can calculate asset net worth, let’s take a look at some examples:

Suppose that an individual has the following assets:

• A primary residence having a value of $350,000

• A secondary residence having a value of $200,000

• An investment portfolio having a market value of $150,00

• Automobiles, checking accounts, saving accounts, and other assets valued at $50,000

Let’s take a look at their liabilities:

• A car loan of $8000

• Outstanding mortgage balance of $120,000

In this scenario, their individual net worth would be calculated as:

Assets – Liabilities = Net Worth

($350,000 + $200,000 + $150,000 + $50,000) – ($8000 + $120,000) = $622,000

As you can see, the individual’s assets exceed their liabilities. As a result, their net worth is positive. Let’s take a look at another example to understand negative net worth.

Suppose that an individual has the following assets:

• A primary residence having a value of $150,000

• A car and other assets valued at $20,000

Let’s take a look at their liabilities:

• Outstanding student loan balance of $60,000

• Outstanding mortgage balance of $150,000

In this scenario, their individual net worth would be calculated as:

Assets – Liabilities = Net Worth

($150,000 + $20,000) – ($60,000 + $150,000) = – $40,000

As observed, the individual’s liabilities greater than their assets. Consequently, their net worth is negative.

How Can You Increase Your Net Worth?

If you are a high net worth individual with $5 million to $500 million in liquid assets, then it’s important you work with a financial advisor to increase your net worth on a consistent basis. Preparing a robust investment portfolio is a great way to do this. Click here to access our guide on how to improve portfolio performance and increase your net worth.

Here are some things that can help increase your net worth:

Ensure Proper Asset Allocation

Asset allocation is a vital part of managing your investments in a responsible way to grow your net worth. This investment strategy focuses on diversifying your assets across different asset classes such as bonds, stocks, and cash. These assets behave differently in different market conditions and diversifying your investments can reduce your risk in case of significant economic downturns. For instance, if an economic event triggers a stock market drop, it won’t hurt your bond and cash investments as much. This can offer you some security. Simply put, proper asset allocation and diversification allows you to generate passive income despite changes in the economy.

To learn about protecting your investment portfolio, order a hardcover copy of our book, The Art of Protecting Ultra-High-Net-Worth Portfolios and Estates – Strategies for Families, Worth $25 million to $500 million. It is FREE!

Control your Tax Costs

Your expenditures can also decrease the value of your assets. If you are spending more money than what you are earning, then it can be difficult to increase your net worth consistently. Pillar Wealth Management works aggressively to minimize your tax costs wherever possible.

We use a combination of active and passive investing strategies to balance your short-term and long-term capital gains. This can reduce your tax burden while also ensuring that your assets increase in value.

If you want to learn more about tax planning, request a copy of our book, 7 Secrets to High-Net-Worth Investment Management, Estate, Tax, and Financial Planning.  You’ll uncover a lot of useful information on investment management, estate planning, and tax planning – all of which can help you increase your net worth. 

Manage Your Risk and Returns

If you are trying to increase your asset net worth by investing in securities, then you also need to monitor your risk and returns. Taking on more risk could directly increase your losses, which can cause the value of your assets to decline. If you have opted for margin financing to invest in certain securities, then risky investments could also increase your liabilities.

Opting for a comprehensive risk management approach is essential here. With Pillar Wealth Management, you can optimize your risk and returns to ensure your net worth grows consistently without exposing yourself to unnecessary risks.

One of the techniques we use for this is the Efficient Frontier. This model allows us to track your returns and increase them while still ensuring your portfolio remains within acceptable risk levels. We make sure you are not making overly conservative investments (unless that’s your goal). Our primary aim is to make sure your portfolio earns the best possible returns without exceeding predefined risk thresholds.

We also utilize extensive sets of historical data going back to 1925 to outline potential risks that could threaten your investment portfolio and diminish your net worth. These data sets allow us to account for unforeseen circumstances that can hurt your financial health in the future.  Besides this, we run simulated scenarios to see how your portfolio responds to different scenarios and make adjustments accordingly.

If you want to learn about risk management tactics, talk to a wealth manager in a free consultation today!

Rebalance Your Portfolio

Growing your asset net worth requires long-term planning. As you grow older, your goals, income sources, expenses, and liabilities can change. They can increase or decrease based on the type of lifestyle you lead.

You need to rebalance your investment portfolio to manage these changes. For instance, suppose that you previously aimed to generate $20,000 in monthly income through your previous income sources. However, you have gotten married and have kids now. You need to build a trust fund and handle other expenses such as their college education. You’ll need to make smart investment decisions that help boost your income without taking too many unnecessary risks.

You also need to rebalance your portfolio to account for changes in your risk appetite as you grow older. In this case, you can consider decreasing the percentage of equity investments and investing more in bonds and cash-based investments. These have a low risk-return profile and can help you sustain your net worth as you approach retirement.

There are other critical shifts that can help you boost your portfolio performance. To learn about these, click here to read our free guide.

Wrapping It Up

We hope this blog was useful for figuring out how asset net worth works, what are types of net worth, and how you can calculate net worth.

If you are ready to invest $5 million to $500 million in liquid assets, reach out to Pillar Wealth Management today. We can guide you on investment and wealth management and help you create a plan for increasing your net worth in a consistent manner and managing your liabilities.

Book a free session!

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