Asset Versus Liabilities
The key to making good investments is understanding the difference between assets and liabilities. Assets are purchases that give you more money in your pocket. Liabilities do the opposite, they pull money out of your pocket. How can something you purchase require more money? Have you ever sent a car in for repairs? This is one of the largest concerns when it comes to financial literacy.
I will mention some of these assets and how you can use almost anything to form an asset. I have mentioned starting investments into assets in a previous post. However, there are two things worth mentioning about retirement funds. First, reasonable investments into a retirement fund, while they can easily make you a millionaire, usually they cannot exceed much more than that. Second, retirement funds cannot be easily accessed before retirement.
This post will mention other ways to invest in which can put money in your pocket before retirement, but could make you a even richer than a millionaire.
Many people say that education is just becoming more expensive and less valuable. I both regret and am happy to inform you only one of those is true. While the cost of higher education is rapidly increasing so are the demands for degrees. However, people must evolve to view education much more as an investment than simply extended school.
While I do not believe in taking out full loans for college, think of how a bank or anyone would see your pitch. Would they grant you the money to learn something, unless they see you making back more money to pay them back? If not, the school/degree may not be worth pursuing. Sorry to all the business and marketing fans according to Forbes, these degrees may not provide you the future you desire.
Education may land you with higher paying jobs, but you could also learn skills at college you may have never learned anywhere else (yes including the internet). I went for biochemistry. I feel like I have learned skills going for that degree that I would have never learned anywhere else. If you know a place aside from higher education where you obtain HANDS ON experience with callus tissue cultures, cellular cultures, peptide mapping, and molecular cloning (not the exciting one with Dolly the sheep), please leave a comment below.
I will write how you can determine not only which degrees you should go for, but how to maximize the benefits of your education in a future post.
2) Stock Market
“The stock market? But that is a risky investment, do you not know about 2008?” Of course I know about 2008, even a five year old today knows about the 2008 recession. Fun fact, recessions happen. Warren Buffet said that economic bubbles occur when “people start being interested in something because it’s going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren’t… And their spouse is saying can’t you figure it out, too? It is so contagious. So that’s a permanent part of the system.”
What he means is that some people are fickle and greedy and will try to make a few quick bucks. Like any investment there are ups and downs. Most people and even potential investors do not know that. When they suddenly panic and sell, the market goes down. So as long as a large majority of humans are fickle and greedy these recessions will continue to happen. Now I am not a soothsayer, but probably the surest investment I could ever make is a bet that humans will be fickle and greedy thirty years from now.
As previously mentioned the stock market tends to go up. However, the question is should you invest in individual stocks or mutual funds like the one for your retirement fund? Well this is your chance to expand your horizons. It’s up to you. I will eventually post about investment advice and how I set up my own portfolio.
3) Monetized Creative Work
“Uh, what?” Monetized creative work is anything you put creative effort in which provides people with something they want or knowledge they want. This can include blogs and vlogs like my own blog.
Monetizing can be done with personal advertising in your creative works. This can be provided by affiliate marketing. These programs provide links in which can provide access to the product and usually even special deals.
Every time someone views your work a marketing company can pay you for views or clicks of an ad. This puts money in your pocket. Best of all these works can be viewed as long as it is posted so the money-making potential can always be present. And they are fairly inexpensive.
Books and videos can be monetized in addition to being viewed/purchased online.
People who use affiliate marketing well can make >$10,000 each month and hundreds each day if done well. This will however take time to build and a good number of viewers.
This is a tricky form of investment. Real estate assets have rates of return even higher than the returns of the stock market. However, this cannot just be done with buying and selling houses. The average rate of appreciation for housing assets is about 3.5%, which hardly beats the latest inflation rate of about 2%. Don’t forget about maintenance.
The general trick to real estate investing is to develop cash flow from the property while trying to increase value over time for potential sales. However, real estate investors can accurately be labelled as businessmen since they must handle management, sales, maintenance, and many more aspects. If you want to go down this route make sure you are willing to put in effort initially like it is a business.
I am not particularly an expert on real estate investing, at least not yet. I have learned quite a bit about real estate investing from other experts and I will post more on how to invest in real estate. Make sure to look for other mentors who you can learn about real estate investing.
5) Business And Venture Investing
I am putting these two together since usually people who venture invest become strongly involved in the business. For those who do not know, venture investing is when you provide financial assistance to a kick-starter or small business for a return. These assets especially scare people because they think of starting/investing into a business as a risky asset. Even businesses which require little or even no investment require time and effort. However, there are many benefits to this asset despite the risks of investing in a business.
One of the largest risks I have heard people say is that they will give up a steady paycheck. I disagree. Keep your day job, but mind your own business. You may recall that line from Rich Dad, Poor Dad. You can work for a steady pay check while having a business. For instance, your business could start as a side gig in which picks up. Instead of working harder, start to employ other people. You can act as their employer and instead start managing your business. You do not need to give up your job, technically you never do. I have not heard of a universal policy in which forbids people to work for a steady paycheck while their business makes billions, it’s just pointless so no one does that anyway.
Businesses Are About What You Put In
The best thing about starting a business is that the returns you obtain are entirely up to you. If you develop something new and have exclusive rights you can make almost as much as you want. Otherwise, it is dependent on your investment of time and effort.
I do not recommend this route unless you actually have interest in what you do. About 63% of business owners clock in more than 50 hours a week. Coming from someone who clocks in that much time in their work if you have no interest in what you do, it is a waste of time, you will burn out. The thing you do does not have to be your passion, but your passion should follow it.
There are many ways to manage risk, but that is something I should bring up later.
Everything mentioned below are some things I have no interest in investing in from my own personal assessment, but many people say are useful.
To start, I have no beef with cryptocurrency. It can be a good investment, but it’s not one I want to make. There can be massive growth in value, but also massive falls. I heard a joke about cryptocurrency where a son asks his father if his birthday gift could be a Bitcoin and his father said “son, Bitcoins cost $6,000, it’s not like I have $11,000 sitting around. If you want the $2,000, you need to work for it.” And no, I did mess up those numbers, truth is Bitcoin can be that volatile.
Furthermore, there are infamous stories about people who have lost millions of dollars by losing their key permanently. Since these assets are not backed, sorry, it’s just like in South Park where the banker was talking about where he put the investments and suddenly said “it’s gone.”
As volatile as Bitcoin is, many people forget about small cap stocks, stocks in relatively small companies. While considered riskier some can return 50% annually and provide similar profits to Bitcoin. A famous example is Amazon, where each shared increased over 100,000% since its inception in 1997. However, these are more like venture investments. The difference between these investments and cryptocurrency are that if stocks are lost or stolen, many different people can help to re-obtain them. No one will help you with Bitcoin. That’s the reason I will not invest in cryptocurrency.
2) Commodities And Precious Metals
Commodities are investments in oil and other resources. Precious metals are essentially the same, but for gold, silver, platinum, palladium, etc. Like stocks, bonds, and real estate the value of these commodities can rise and fall. Unlike other investments, these do not receive interest nor dividends. They simply rise and fall with the basic supply and demand.
I do not recommend investing too much into these since they provide no value until you finally sell your investments. However, some of these investments rise when the remaining markets fall and could be good for short-term trades. Why do people recommend these investments most of the time? It is said that commodities will still have value if the economy is in turmoil and our currency system is destroyed. Essentially, during the apocalypse.
Problems With “Investing For The Apocalypse”
Now there are a number of problems with this idea. The first is that while items like gold could potentially be traded, trades are not guaranteed. People in need of resources probably cannot use gold or precious metals. Resources like oil could be used, but once again there are no guaranteed trades. If you want to barter you must have something that can be useful during the apocalypse. This includes nourishment and defense. Instead of gold and oil, you would be better buying food, water, alcohol, first aid and treatments, blankets, guns, and bullets. This was advice from one of my mentors and my brother who was/is a military man respectively.
The second problem is this. Do you own the commodities or a paper that says you own those commodities? There is a very large difference. If the apocalypse happens your “useful” items could be thousands of miles away, not exactly useful. And even if you could find it do you think the “old laws” will apply when people are desperate and hungry? Imagine what would happen if you suddenly show up to a group of people living off those resources with a piece of paper saying you own the items that keep their children alive.
If you want to try to trade items like these, go ahead, however my idea of an investment is something that provides long-term growth and commodities do not necessarily fit for that.
It’s your assets. You worked hard for your money, now you want it to work harder for you. You will have to put effort in to find out how they can work best, like any good employer does for their employees. However, purchasing these assets (even those that go wrong) can teach you more on managing these assets. These assets will help you to forge your wealth.