A lot of experts like to use confusing words to describe simple ideas (probably because it makes them seem smart and good at their jobs!). Take asset building, the most basic of investing ideas. Asset building is the reason everyone invests. But if you look up the word “asset” in the dictionary, you may see a technical accounting-based definition that makes you scratch your head.
So what exactly are assets? And why should everyone (not just rich people) be totally focused on asset building?
An asset can be pretty much anything worth money. Your house, your car, and the cash you have squirreled away under your mattress are all assets. (Basically, if you can sell it, you can call it an asset.) If you think of it that way, most things in your life are assets. The clothes you’re wearing are assets. If you own the chair you’re sitting on while reading this, well, technically, that’s an asset too.
But assets can be divided into two types: those that lose value over time, and those that gain value over time.
The assets that lose value over time are the things that you use, like a chair or a car. The more you use them, the more you destroy them (for every mile you drive a car, for example, it becomes worth less and less). You need these things because you use them for daily life. But these kinds of assets don’t help you build wealth.
When experts talk about asset building, they’re talking about the kinds of assets that tend to gain in value over time – those assets that can make you money. One common asset that falls into this category is home ownership. When you buy a home, it tends to go up in value (the last few years notwithstanding). The other asset in this category is investments like stocks, bonds, and mutual funds. And you don’t need a mortgage to buy those.
When you think about it, what asset building really comes down to is just this: 24×7 money making. When you own assets like stocks, bonds, or homes, they have the potential to make you money all the time, even when you aren’t working. These assets will likely go up in value over time – even if all you’ve been doing is sitting at home watching cable news.
That’s asset building. And that’s pretty cool.
