Assets and Liabilities.
Something that should have been taught to us in elementary school, but was not even taught in a university. The elites do not want the common people to know about this. Many investors consider assets being real estate, stocks, and bonds. I would say that these investment vehicles can easily be liabilities.
Assets are investment vehicles that appreciate and/or pay interest. Libitailies are Investment vehicles that depreciate and/or cost money to maintain. Investment vehicles can be assets and liabilities. Investment vehicles can be more liability than an asset or can be more asset than a liability.
All investment vehicles can either be an asset or liabilities. Investment vehicles change between assets and liabilities depending on the economic environment, human emotions, asset management, and asset allocation. You can control your human emotions, asset management, and asset allocation. You can not control human emotions from other humans and the economic environment.
- Real Estate
The economic environment constantly changes due to human emotions, random events, and debt. Do not ever fool yourself in believing the economy stays the same. Depending on the economic environment you are in, investment vehicles can easily switch between assets and liabilities. When the economy is in the expansion phase, stocks, bonds, real estate, cars, and houses are assets. These investment vehicles can easily become liabilities during a recession. If overleveraged with no cash reserves, loss of net income will turn real estate into a liability during a recession. Cars and houses that were not paid off and still have debt will turn into a crisis when the economy is falling where one’s income is much lower or nonexistent. Stocks lose a good amount of their value during the recession period so stocks can become a liability and worthless if companies go bankrupt. Government bonds become a stronger asset during the recession. Corporate Bonds become much more of a liability during the recession. The United States currency, the dollar, becomes king during the recession, but trash during the expansion due to cheap money. The United States currency, like all currencies, can default and inflate if the economic environment is poised for the dollar downfall.
Human emotions change frequently during economic cycles. The only emotion you have control is over your own. You do not have control over the emotions of other people and investors. Human Emotions is one of the primary reason why extreme highs and lows occur in the economic cycle. When humans feel very positive about the economy, they continue to spend, leverage debt and invest in investment vehicles. Investment vehicles can become quickly become a bubble, where the price does not match the intrinsic value. When humans feel very negative about the economy, humans stop spending, not leverage debt, and not invest in investment vehicles. Negative emotions cause investors to panic sell investment vehicles for much lower than the intrinsic value. You can not control other investors’ emotions but only control your own emotions. When the economy is falling, buy investment vehicles at the lowest prices but do not panic sell. When the economy is rising, do not buy investment vehicles at overinflated prices, but do sell to obtain the most profits.
Bad management of assets can cause assets to become liabilities even when the economic environment is positive. Good asset management can cause liabilities to become assets when the economic environment is negative. Are the investment vehicles being taken care of? Are you taking unique steps to create wealth from buying cars and houses? Rare cars actually appreciate, not depreciate. Buying houses at discount, then refinancing them out to get cash out is a great strategy to obtain initial investment and extra cash which can be then used to invest in more investment vehicles. You could use FHA loans to buy a single-family house every year at 4% down with low interest, then turn them into a rental. Investment vehicles should be managed by the appropriate expert especially when you are not the expert. Stocks and bonds do not really have a huge asset management component like real estate, cars, and houses. Hence why cash returns can be typically higher due to more substantial asset management risks for real estate, cars, and houses.
Knowing when to sell, buy or hold assets is a very powerful skill. Understanding how to position and balance your investment portfolio based on risk to reward is key to generational wealth. Do not be biased between short term and long term holds. The choice very much depends on the economic environment, asset management, and human emotions. Selling investment vehicles near the top of the market while buying investment vehicles near the bottom is key to asset allocation. Sometimes it makes sense to keep investment vehicles where better returns will not be met if you sold it and invested in other investment vehicles. Only buy at the top of the market if you are able to obtain investment vehicles at a significant discount. Understanding risks to rewards are very important to decide if you should sell, buy or hold investment vehicles. Stocks, real estate, corporate bonds, and cars are best to buy when the economy is at a low point and to sell when the economy is at a high point. Government Bonds are best to buy when the economy is in good times, then at bad times.