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Productive Assets, Hard Assets & Paper Assets

24 October 2010 2 Comments

Let’s talk a bit about assets today.  Assets are good.  Liabilities, bad.  Hopefully, you have more assets than liabilities.  If not, you probably need to back up and get some of your basic finances in order.  Once you get that taken care of, get back to this discussion which is about what are the best types of assets and where should you be investing your time & money?

I’ve decided to break it down into three categories and I will talk briefly about each.

Productive Assets

In my opinion, this is your top priority.  Productive assets generate or “produce” a return for you. Productive assets work for you.  Productive assets might be ownership in a company, cash-flowing real estate, a cash-generated online business, etc.

Productive assets are the key to becoming wealthy.

Hard Assets

Hard assets typically refer to things that have intrinsic value.  Hard assets are the opposite of paper assets of which we’ll discuss next.  Common forms of hard assets are like diamonds, oil, gold, silver, precious metals, land, etc.

You could also add things such as guns, ammunition, food, water, shelter, etc.

Paper Assets

Unfortunately, most people are weighted much too heavily in paper assets.  Paper assets seem to be fine, but they can be exposed in a financial crisis like we saw a couple years ago.  Paper assets might be stocks, bonds, currency, money market accounts, etc.  Paper assets require a functioning financial system so if the system goes down, typically the paper assets will go down with it.

A financial collapse might impact the overall economy and hamper the values of productive & hard assets, but typically these will hold up better than paper assets.

Where To Invest

If you’re young, you might not have much capital to invest into assets.  If you’re young, you do have time and energy, however, and you need to allocate this appropriately.  I’d encourage the productive asset area.  For me, I invest most of my spare time into “online assets” that indeed produce a return.  I invest some of my money into productive assets as well as some hard assets and paper assets.  Neither asset category is a bad one, but again, most people have only paper assets and nothing in the other categories.

Do a checkup on your financial situation and see if you are too weighted in the paper category.

2 Comments »

  • Dane said:

    "Productive Assets" would be a great series of posts. I'm sure your target audience (myself included) would enjoy it… maybe start with low-investment/time/return ones and move to more investment-intensive assets? I've really enjoyed your posts regarding blogging and DRIPs and think it would be great to hear what other productive assets you have in mind and how to get those things started.

  • John Paulson said:

    Appaloosa Management invests in public equity and fixed income markets around the world.