Episode Details

Why You Should Invest In Assets Instead Of Leaving All Your Capital In The Bank 

I once attended a seminar featuring Robert Kiyosaki of the 'Rich Dad Poor Dad' books fame. They got a very smart 10-year-old boy to stand up on stage and repeat his mantra. They asked him, what is an asset? 

“Assets puts money in your pocket “, the boy gleefully replied. 

They then asked him what is the liability. 

The boy said, “liabilities (e.g. cars, consumer goods) - takes money out of your pocket”. 

He’s probably a millionaire by now! 

However, this rather simplified description of an asset and does not really explain assets fully. 

Whilst it’s true that assets can put money in your pocket, like property or shares, not all assets give you a regular income and the value can go down as well as up. For instance, gold and silver, or classic cars and watches are not going to give you an income unless you rent them out, but the value generally increases over time but can also decline for many years. Obviously, you can also enjoy using them. 

Assets are not always tangible or physical. They can also be things you create like blogs, podcasts, books, songs, websites, online stores, copyrights, inventions, email lists, Facebook pages and many others including of course businesses. My best investments and greatest assets have been the businesses I started from scratch with hardly any money. 

One very sound reason for investing your money in assets, as opposed to leaving it in the bank, is to protect the value of your savings against inflation. 

If you are earning half of one percent and your savings and inflation is running at 1%, The rate at which the buying power of your money is going down is double the amount you are earning on that money. Whilst a half percent doesn’t sound much, over the years it will eat into your savings like a moth-ridden pair of curtains. We all need some ready cash in the bank by the way. 

It was only about 15 years ago I could buy a flat in my area with a 15% deposit or around £20,000 - £25,000. Today, I would need £40-£50,000 to buy a similar flat with the same percentage deposit. This is because properties have gone up faster than inflation while savings in the bank have lost their buying power. 

In other words, if I was sitting with £20-25,000 in the bank for 15 years the value or buying-power of that money has diminished and would no longer be sufficient to put down on a flat, as first-time buyers saving for a deposit find to their cost. 

Put another way, I have doubled or even tripled the value my money put into the property over a 15-year period. In addition, I also enjoyed income in the form of rentals. Had I left it in the bank I would have earned a little bit of interest, but the real value has gone down. Yes, it requires more effort on my part but the little bit of work itself was well worth it. 

Assets can also include stocks and shares, which also provide dividend income and the prospects of future growth. 

Today, we’re not even earning half a percent on our savings but less the .25% in some cases and inflation is running at nearer 3%. 

You might say, okay everybody knows the value of properties go up and inflation reduces the value of your money. If that is the case, why do so many people leave their money in low-interest bank accounts for years instead of investing in real assets? 

Part of the reasons are lack of knowledge, poor education, complacency or just laziness – it takes a lot of effort, get up and go and tenacity to travel around looking at properties, doing your homework, applying for finance, dealing with tenants, builders, brokers, and estate agents! 

Not everyone wants to be a landlord or property developer. My own relatives don’t want the hassle and own one residential property at a time despite the fact that they could