Invest into True Values and Real Assets (II)

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Your time is one of your most valuable assets -- invest it into the true values. If you park your money on a savings account, it is steadily melting away; as a better option, invest it into the real assets.

This is the second article on this subject and considers the YES-side: what does have the true value and how to find real assets?

By definition, investing means allocating resources (basically, time and money) into something that creates future benefits (as opposite to today's consumption). As follows, the essence of values and assets is explained keeping that in mind. At the same time, the approach is rather broad: investment may involve several steps before we start seeing the final effects or end results.

Assets

As depicted on balance sheet, assets present the opposite side of liabilities and ownership equity. However, using balance sheet as a basis for defining assets is rather questionable. The reason is that not all entries on the left side of a conventional balance sheet are real assets. Actually, this statement just shows us, where the money comes from (the right side) and how it has been used by a given report date (the left side).

I like the definition given by Robert Kiyosaki's rich dad: "If you stop working today, an asset puts money in your pocket and a liability takes money from your pocket." (For reference, click here). It's very simple and easily understandable. Let's just take an example: your house bought using borrowed money is a liability rather than an asset (because on regular basis you have to pay your loan payment as well as interest for that).

The above still might be a too narrow definition. It only represents the monetary dimension, and implies that one should invest into something which has an immediate positive cash flow. In fact, there are things that can generate us future benefits, which cannot or should not be expressed in dollars, euros or whatever currencies.

Good relationships with people around us or investments into our knowledge and skills could serve as examples here. There are also things that free our time and/or enable us to diminish our future costs (such as investing into and applying new technologies). Freed resources could be used e.g. for acquisition of the cash-flow generating assets.

When summarising the above, an asset turns out to be something that has at least one of the below given characteristics.

* It generates us a directly measurable income (a typical example here is investment real estate with positive cash flow).

* It is going to be exchanged to other assets (such as cash itself).

* It frees time or other resources that are further used for obtaining assets (like advanced technologies).

What is important in here is that on principle, we can turn things into assets by ourselves (similarly, we can turn them into liabilities). Don't you think that this skill could be one of our biggest assets? The suggestion here would be to invest a little bit of our valuable time for obtaining this skill.

Values

"Value" is a rather complicated concept. Economists have been struggling with it for long time. We all have heard about different values like economic value, exchange value, market value, intrinsic value, value in use etc, some of which are hardly measurable.

When talking about investments, we are interested in values in two senses:

1) the value of an asset as the equivalent of its appropriate price -- this is a subject for another discussion, and

2) value as a subject of investing -- that is what we keep in mind when saying "invest into values".

In the later sense we should truly consider to invest our time and money into values that make us better or things to be more worth for us. Here I mean for example:

* our own personal values like honesty, reliability etc;

* values that present a rich and healthy living environment;

* values that present the improved characteristics of production resources (like result-orientation and commitment of our employees).

These are values that could give meaning to everything else.

[The first article on this topic can be found here.]

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