Growing your wealth is an important part of financial planning. Ensuring that your money keeps up with (and hopefully outpaces) inflation is crucial, as it means that what you save now will help you to afford your lifestyle in future.
One of the most prevalent issues that I find clients to have, though, is in deciding how to grow their wealth.
Some common options that you might be considering include:
- Investing on the stock market in shares, funds, bonds, and other assets
- Creating a buy-to-let (BTL) property portfolio
- Running a business.
Each comes with various advantages and drawbacks in terms of what you’ll have to spend and the returns you can generate.
But in my view, this begs a more important question: “How much value do we place on our time and stress when trying to build wealth?”
To me, this is where “return on hassle” comes into play.
Read on to find out what taking return on hassle into account means, and why I believe a well-balanced investment portfolio is the most effective option for avoiding hassle.
Return on hassle takes your time and energy into account when growing wealth
Many people exclusively focus on return on investment (ROI) when growing their wealth. Yet, return on hassle is perhaps a more important barometer of effectiveness.
Return on hassle considers more than just the financial side of your returns. It takes into account the time and effort you’ll need to put into an investment before you’re able to generate the returns you need.
The different methods of investment all provide various returns on investment over time, with some performing better than others.
But generally, return on hassle remains fairly static. Let’s look at the typical return on hassle of some of the most popular ways you can grow your wealth.
Property is arguably one of the biggest hassle investments
Property is a hugely popular investment asset. You have the hope that your property will increase in value over the time you own it, and you can generate a regular income if you choose to rent it out, too.
However, there is significant hassle involved with a buy-to-let property. Consider some of the mental and physical work you’ll have to do, such as:
- Finding tenants, assuming you are able to find a tenant at all
- Maintaining your properties, ensuring that they are liveable and meet the necessary regulations
- Taking on additional debt in the form of BTL mortgages.
This is all before you consider the tax implications of buying and selling property, including:
- Stamp Duty Land Tax (SDLT) on purchase
- Income Tax on rent
- Capital Gains Tax (CGT) on any gains in value when you come to sell.
Not to mention that property can be highly illiquid. If you want to access the money tied up in your property, you’ll need to sell it, a process that can easily take from six months to a year.
You’ll also have to hope that a buyer is willing to pay the price you set for it at this point, too.
As you can see, there are plenty of potential hassles that can get in the way of generating returns when investing in property. Is having to help a tenant in the middle of the night because their boiler is broken worth the return?
There are a whole host of hassles involved with running a business
On paper, the idea of becoming your own boss by starting and running a business feels like a tangible and exciting possibility.
You might have a wealth of experience built up from years in a particular sector, giving you an insight into how to provide a product or service that beats what’s available on the market.
Or, you may look to enter into an entirely new area of business that’s unfamiliar to you that you think you can improve.
Whatever the impetus, there are plenty of potential upsides to running a business. You can work how and when you want to, and the only limit on what you can earn is how many sales you make.
However, there are significant hassles involved. For one, there’s immense risk in owning a business.
What happens if you aren’t able to find the client or customer base you need? Or what if external factors such as increasing costs mean you can’t actually generate any profit? In these instances, you might find yourself unable to produce any returns at all.
Furthermore, you’ll need to invest a significant amount of time in growing the business. This might infringe on time spent with your loved ones or doing things you enjoy, a price you may not be willing to pay.
There are also significant tax implications to consider, from how to tax-efficiently withdraw the money you make from your company, to business levies such as Corporation Tax.
In combination, these elements can make business ownership a highly stressful experience, with so much hassle that it might outweigh the money you can generate.
Investing can be a hassle-free way to grow your wealth
Now, compare these options to a low-cost, well-diversified investment portfolio. In my eyes, I believe that investing is the simplest and most hassle-free way of achieving financial freedom.
Why try to own property or a business outright when you can own property and a successful business through a low-hassle investment fund?
Even in a simple S&P 500 index fund, you could gain exposure to companies such as:
Statistically, the returns of doing so are fairly reassuring, too. According to Investopedia, the index has generated average annualised returns of 10.15% between 1957 (when 500 stocks were adopted into the index) to 31 December 2022.
I would argue that this method is minimal hassle in comparison, particularly if you’re working with a trusted adviser. You can spend less time and energy worrying about filling properties with potentially problematic tenants, or what last month’s turnover was in your company.
A financial planner can design an investment portfolio with you and your goals in mind, targeting returns that help to keep you on track to reach your goals in future.
They can help to ensure that it’s as tax-efficient as possible, and take a great deal of the time and effort away from you, removing the stress from your shoulders.
Get in touch
If you’d like to talk through any of the issues you’ve read about here, then please get in touch.
You can call me on 07769 156 250.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home or property may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Think carefully before securing other debts against your home.
The Financial Conduct Authority does not regulate taxation advice and some aspects of commercial and buy to let mortgages.