Passive Investing vs. Growing Assets

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Your main target as an investor is to make your money work for you, rather than you working for money. Most of us usually think about owning assets which can bring entirely passive income for years. And that’s fine.

Growing Assets
Photo by KUNTA.TOKYO at Flickr

But buying ready asset which brings passive income is not always the best option for you. Here are some reasons for that:

  • Such assets have high price. Said in another way, it means the assets which can be bought easily rare bring good yields. The easiest thing you can do is to have a bank deposit, but it will bring you just 3%-4% per year.
  • There is a high risk. If you find ready for producing income asset at a good price (i.e. bringing higher ROI), it will go together with a high risk. For example a managed forex account can bring you 100% or more per year, but you can also lose 50% or more of your money.
  • Everyone can have same assets. Well, this is not entirely true, because some of the assets are available only after careful research. But in general, everyone can invest in stocks, managed trading accounts or hedge funds. This means that the mentality of the masses can easily change the value of the assets. See what happens with the stock market or the mutual funds at times of mass psychosis.

Create Assets Yourself

If only money is the barrier to most ready assets, how can you expect them to perform great? In today’s world the total amount of money is always higher than the real resources which makes the prices of financial assets fluctuate depending on psychology and mass-media factors.

On the other hand, assets which require more than just money have higher core value. This is the case with growing a business. It requires creativity, ideas, hard work, discipline, concept, people, technologies, relationships, properties and intellectual rights. A business unit has a real value, not only perceived one like many financial assets.

If you own a business the global market crashes are much less painful for you than if you owned stock shares. Even when the global recession hits you, your losses are usually not that bad.

Growing a business or creating an intellectual property is not exactly a passive investment

Unfortunately you can’t just put some money somewhere and watch a business grow (Or you can by angel investing but then the business will not be yours). Your business needs your ideas, capital and creativity to get started. Even if you have all the money growing your business needs at the beginning, you’ll still need to work hard your mind in order to create a valuable and successful company.

But growing a business can still be seen as a passive investment in general. If you only invest your time and hard work at the beginning and create a system which can work and grow without you, you will have an asset bringing you a passive income.

Creating an intellectual property is another and simpler way to grow an asset. Let’s say you write a book or a software program. You have to invest a lot of ideas, time and efforts into creating the product. During this time you will not be an investor, you will be a worker. Even if you outsource the writing or the programming, you will still need to work in the beginning at the idea project and later to keep an eye on what’s going on. Once created however such a property can bring a residual passive income for long time. Then it turns into an asset, so the whole process again can be seen as investing – you invest time, money and work at the beginning as opposed to investing just money.

You may decide just to buy an intellectual asset – for example resell rights for a book. But buying resell rights is easy, everyone with money can do it – so the ROI of such a venture is much lower.

It’s really as simple as that – the cheaper and easier to obtain an asset it, the lower profits it returns. Expect the higher ROI from assets which require the most from you – and that “most” is not always money.

Growing your own unique assets is the best long term strategy for financial success. I believe it’s the only way to survive unpredictable market movements so I’ll cover this topic more and more in the future.

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12 Comments on "Passive Investing vs. Growing Assets"

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  11. Michael

    Very good article.

    In my opinion, it is all a matter of market timing. It does not matter if it is gold, oil, or Microsoft, if you have access to good market timing signals, they will help you get in and out at a profit.

    No guarantees in this business, but if they are right most of the time, you can still make $s.

    There are may web sites providing them out there (search Google). Just find one that works and use it! Check out as an example.

    Its Dow Jones timing signals are up 44.7% as of 6/24/09 while the Dow is up just 26% off its March lows.

    Following a market timing system works!

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