3 quality assets to make you lots of money
3 Quality Assets to make you lots of money
If you read my article What is net worth and why should I know mine, then you may already be familiar with what assets are because knowing them are essential for determining your net worth. Assets are simply defined as property owned by a person or company, regarded as having value. Popular forms of assets are houses, vehicles and investment accounts (ie RRSP, TFSA, 401k, etc). Less common assets would be jewelry, art, RVs or other vehicles and high end luxury goods. We’re going to focus on the popular assets for this article. In particularly money making assets.
There’s essentially three main types assets to make you lots of money:
- Real estate – Property comprised of land and the buildings on it as well as the natural resources on the land such as minerals, flora and fauna, crops, livestock, and water. Real estate is one of my favorite assets. They’re rarely making new land, unless you’re in Dubai but that’s not working out so well for them. So real estate(land in particularly) almost never decreases in value over the long term. It also has great leverage abilities.
What do I like about Real Estate?
Banks are much more likely to allow you to take out loans against real estate when compared to other assets. You can make money in 4 different ways with real estate AND someone else will pay all of the bills for you. Not to mention there are numerous tax benefits to having income properties. You can deduct mortgage interest; you can deduct expenses incurred thru owning these properties and several other deductions which I’ll explain thoroughly in a future post.
So what’s the downside to Real Estate?
The downside is compared to the other two asset types you need a lot more money to get started in real estate. For example, the low end of houses in most areas will be around $100,000 where you might be able to get by with a 5% down payment of $5,000. More than likely since it’s an income property and you’re probably not living in it you’ll need 20% for the down payment, plus you closing costs which will put you up over $20,000 to get started. It can also take up a reasonable amount of time if you’re handling everything yourself, you can save some time but spend a little more money if you use a property manager.
- Paper Assets – Generally these are most common assets when most people talk about retirement savings. A few examples of these would be stocks, bonds, GICs, cash, options, etc.
What are some advantages to owning paper assets?
The biggest advantage to paper assets is the lack of barrier to investing. I can buy lots of these for a few dollars and a $7-10 dollar commission charge. It’s also as easy as opening up an account online and filling out some forms. The ability to turn them into cash is pretty easy as well. In minutes you could put a sell order in and have cash in your account in a matter of minutes provided the markets are open, which they are Mon-Fri from 8am-4pm in their time zones for most of them. Paper assets have the least amount of risk if history is any indication as the markets have typically returned 7% adjusted for inflation over almost any 10 year period.
The downside to paper assets is that you have little to no influence on their performance. You’re completely putting your money in someone else’s control, but luckily they’re looking to make money just like you, so your intentions should match up!
- Business assets – Business assets are self explanatory it’s a business you own or partially own and work to produce income. It differs from paper assets in a company in the fact that you would have more control over day to day operations. With paper assets you’d control a few thousand votes out of hundreds of millions whereas with a business asset you’d be a sole proprietor or partner with a few other people that you would know personally.
With big risk comes big rewards
Business assets have the highest potential to increase your earnings but it also comes with the biggest risk as almost half of all businesses fail within their first 5 years and only a third make it to the 10 year mark. This can be a daunting statistic; it definitely makes you seoncd guess your plans! Business assets also take a lot of time and money to start and maintain. Sometimes you can be cash flow negative for years
Now you know the difference between these 3 types you’ve started your next step toward financial freedom.
This information should get you started on diversifying your investments through different asset types and not just within one particular asset. I personally have dabbled in all 3. The business one being the least successful as I was 19 years old and had no idea what I should be doing. Luckily it was not a big investment and there was mild success but it wasn’t enough to turn into a career. Currently I have a big combination of paper assets and real estate and I’m looking to expand the real estate side a lot further and the paper a little further to get into some margin investing. I really like the real estate for the cash flow and tax benefits. Businesses also can provide those benefits and more but usually require much more work and have a high risk of failure.
How many types of assets do you have in portfolio? What are you looking to add in the future? Let me know in the comments below.