First off, what is an asset? An asset is something can be used to generate income. Assets can take on many different forms, such as stocks, bonds, real estate, or other things.
Investing is when you trade your money for assets. These assets are supposed to (but don’t always) generate more income for you. When this happens, you can think of it as your money working for you. For instance, if you get a 10% return on a $1,000 investment, you have made $100 without having to do anything other than invest your money. If you earn $20/hour, it would have taken you 5 hours of work to earn that $100. This allows you the option of either working those 5 hours and ending up with $200, or taking those 5 hours off and still making $100. This may not seem super exciting, but if you stick with it for a while, continually invest in quality assets, and keep your investment money invested, you can grow your investments into an income producing juggernaut.
When saving for retirement and investing your money, you can think of your savings like your farm. After all, in both cases, you’re trying to build something that will provide the things that you need to survive and thrive. Let’s say that you have 40 years to build up a farm, and after that, you can only live off of what your farm provides for you.
Scenario 1: you think to yourself that 40 years is plenty of time to build a farm. You procrastinate a bit and do other things for 20 years. Finally, you realize that you had better get going on your farm. You start by buying a few chickens and a rooster, and a bull and a cow. You care for the animals a bit, and get some eggs and milk, but you get tired of them after a while, and you make yourself a chicken dinner here and a steak dinner there. As you eat your chickens, you get less eggs, so you become hungrier and you eat more chickens as a result of it. All of a sudden, it has been 40 years, and are devastated because you realize that you have nothing – you ate your chickens and cow, which were your only source of food, and while the dinners were delicious, you no longer get any milk or eggs.
Scenario 2: you think about it a little bit and realize that if you get started early, 40 years is plenty of time to build a huge farm that will take care of you and your family. Just like in scenario 1, you start by buying a few chickens and a rooster, and a bull and a cow. You realize that you can have the animals reproduce and grow your farm substantially by doing so. You get a ton of eggs and milk, and you trade some to your neighbor for some pigs and some fruit. You eat the fruit and plant the seeds from it, and as time goes on, those fruit seeds become an orchard. Eventually, your 40 years are up, but you aren’t at all bothered because you have a farm that provides more than you’ll ever need. You go outside every morning and get eggs, milk, and fruit. One of your chickens becomes dinner, but your other chickens have 5 chicks that hatched today, so you get to have your farm and eat it too.
In the beginning, you have to make do with what you have and be patient. However, if you are patient and let your farm grow, with time, it will begin to sustain itself and both grow larger and provide for you.
In this series, we’ll explore some of the common terms and concepts of investing and how to get started on building your farm.
Seaotter Fitness 