Best Asset to Own?
Years ago when I was a graduate business student, I came to realize my assumptions about assets and their respective returns were wrong. I, like most people, thought the best returns came from financial assets, but as I analyzed various asset classes, I discovered the truth. Real assets GENERALLY pay better returns than financial assets.
Financial assets generally pay better returns based upon taking greater risk
- Cash and money market accounts pay the lowest returns (The rule of thumb I was taught was 1-3%)
- Fixed income instruments like bonds and preferred shares are next up on the spectrum (The rule of thumb I was taught was 3-8%)
- Stocks usually deliver better returns, but have the highest risk loss (The rule of thumb I was taught was 8-12%)
Real assets provide even better returns but usually suffer from liquidity, volatility and risk issues (The rule of thumb I was taught was better than 10% and usually much, much higher)
- Commodities
- Art and collectibles
- Real estate
- Businesses
If you read Robert Kiyosaki of Rich Dad/Poor Dad fame, he advocates two real assets-- real estate and businesses. There are many reasons his position tax advantages being high on the list, but the high potential returns throw these asset classes over the top.
Finally, real assets tend to be better inflation hedges-- I will be addressing the importance of that in a post this weekend . . .
Like this post? Check out the related posts for more information. You can also get email notification of new posts in your email by subscribing. Your email address won't be used for any other purpose than to send you notification of a new post.
Related posts:
Words of Wisdom: Robert Kiyosaki
How to Become a Millionaire
New Product/Service Ideas
Creating Income Producing Assets
Wealth Creation and "Assets"
Passive or Residual Income
The Best Essay on Creating Wealth I Have Read So Far . . .
Flipping Burgers, Cars, and Houses . . .
What is Multipreneuring?
What is Defensive Entrepreneurship?
Added Value and Adding Value . . .
Side Business Ideas Recap
Categories: Wealth, Personal Finance, Investments, Personal Philosophy
Tags: Collectibles Personal Finance Savings Investments Defensive Entrepreneurship Entrepreneurship Multipreneuring Rich Dad Poor Dad Robert Kiyosaki Quotes Wealth Personal Philosophy
Trackbacks
-
7/24/2009 8:57 AM
DEFENSIVE-ENTREPRENEURSHIP.COM wrote:
Years ago when I was a graduate business student, I came to realize my assumptions about assets and their respective returns were wrong. I, like most people, thought the best returns came from financial assets, but as I analyzed various asset classes, I discovered the truth. Real assets GENERALLY pay better returns than financial assets. Financial assets generally pay better returns based upon taking greater risk: Cash and money market accounts pay the lowest returns (The rule of thumb I was taught was 1-3%) Fixed income instruments like bonds and preferred ...
In my opinion, the best asset we own is ourselves. I realize that's slightly different then what you're referring to here, but only marginally so. We are the moneymakers that make the assets you refer to possible, so I think we have to look at ourselves as an asset and that's why it's important to take care of ourselves so that we can contribute to both financial and real assets.
Though I'm not a big fan of commodities, I do agree that real assets have a better rate of return; however, not being much of a huge risk taker, I stick with the financial assets. I'll be interested to read your take on how real assets hedge inflation, though.
Reply to this
Kristy, you are not wrong-- we are the greatest income producing assets many of us own. Typically, a very good investment with the right skills and education.
I am not advocating that people start trading commodities. Further, there are many financial assets I really like, but businesses can produce the biggest returns of all and many people tend to overlook that fact.
Starting or buying a business isn't for everyone, but I think this recession will create some very interesting opportunities and new businesses . . .
Thanks for your comment!
Reply to this