4 ms·
My line of logic is that there are two types of investments. The first type is where you buy something that you hope to be able to sell for more down the road.
by derekp7 5y ago
My line of logic is that there are two types of investments. The first type is where you buy something that you hope to be able to sell for more down the road. So things like gold and bitcoin come to mind. You buy an ounce of gold today, and it doesn't grow to two ounces several years from now.
The other investment is where you buy an asset that gives you an annual return without having to sell off pieces of that asset. So dividend paying stocks, and real estate if you have something on it (farm, building, etc) that gives you a return. The base asset itself can also go up in price if the annual returns are expected to go up over time also.
Then there are assets that are in the second category, but you also have to put work into in order to get that return. So things like owning your own business. Real estate can also require some amount of your own sweat, or you can hire that out (which eats into your profits). Or you can buy wood-working equipment, learn to make quality furniture, then convert raw lumber into more expensive finished products. But again you have the upfront investment, consumables, and effort.
And the class of dividend-paying assets that you don't have to put any work in have a risk that they quit laying golden eggs at some point (i.e., the goose could catch a virus and die). So in reality, I never know what to invest in that doesn't require constant work, and doesn't require me to break off pieces of it to sell in order to extract value.
- SketchySeaBeast 5y agoAnd this is why ETF's and index funds have become so pervasive. You can buy a high dividend ETF, set it up to DRIP, and then you have a share in a hundred geese, all of which can somehow combine together to give you another goose on a regular basis.