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3 components of a strong performing asset

Updated: Apr 11

Everywhere I look I hear about Assets vs Liabilities and how Rich Dad Poor Dad changed the mindset of how the rich people and poor people spend there money. When people talk about this topic they rarely define examples of what assets are, they usually just state "buy performing assets". So I created a new module to help people understand assets and liabilities in a little different light.


To be an asset it must be of worth. To have worth is defined as something of value. But to be a great asset it must have my 3 components. These 3 components brings the highest value with the least amount of risk. Lets define the best performing asset and its 3 components..


1. It must appreciate overtime.

2. It must not have any liability/debt

3. It must have passive income


So to help educate everyone lets talk about a couple examples..


First, lets talk about your 401k..

Does it appreciate overtime? Yes.

Is it debt free? Yes

Does it have passive income? Yes.


Under my guidelines a 401k is a great investment and a high level asset.


How about a house? What if you buy a primary residence, and get a mortgage loan to get it?

Does it appreciate overtime? Yes

Is it debt free? No

Does it have passive income? No


So your primary residence has 1 or 3 components. So not the best, but definitely not the worst.


Lets talk about buying an existing business with an SBA loan.

Does it appreciate overtime? Yes

Is it debt free? No

Does it have passive income? No, its active income.


So buying an existing business with an SBA loan is similar to buying a primary residence.


Lets do 2 more examples..

What about buying a rental property with a loan?

Does it appreciate overtime? Yes

Is it debt free? No

Does it have passive income? Yes


So 2 out of 3 components so it’s a pretty good asset. But there is still liability so there is some risk.


The final example is the example everyone uses..

What is you buy a car with a loan.

Does it appreciate overtime? No, it depreciates.

Is it debt free? No

Does it have passive income? No


That’s why this is the worst thing to buy. Because it has zero out of 3 components of a strong performing asset.

What if you paid cash for the car?

Does it appreciate overtime? Still no

Is it debt free? Yes

Does it have passive income? No


So as you can see this is better because it has 1 of 3 components.


The other things you need to understand is the liability side of it. ANYTHING that has debt is a liability. Anything with debt poses some sort of risk. Obviously the less the debt the less the risk. But even real estate with high debt can get you in trouble. Whether its because of a market crash, or a high vacancy rate.


So as your deciding what assets or investments to make think about the 3 components to decide what is going to be the best asset for you, and this will improve your overall investing decisions.


#Assetvsliability #entreprenuer #Missionselfimprovement #selfhelp #Selfimprovement

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