An asset pays you, a liability costs you money.
From our perspective, a security that doesn’t pay a dividend is more properly described as a speculation as opposed to an asset.
You can only receive a return if someone else is willing to pay more for the security than you did, and that is speculative.
A liability is something that costs you money, loses value or separates you from your money. Life is nothing but liabilities starting with your basic needs followed by an endless array of wants. You must have assets to pay off life’s liabilities.
Your home and car, traditionally viewed as assets - by bankers - are actually liabilities for wealth creation and preservation purposes. Your car declines in value and costs you for fuel, maintenance, and insurance. This is a real liability. Likewise, your house, also viewed as an asset by your banker, is an enormous liability. While it may appreciate in value, the cost of financing, insurance, taxes, and maintenance can be staggering.
An asset that generates positive cash flow is generating a return on investment from the start. That income is for paying off liabilities. As the income from that asset grows so does the value of that asset, all other things being equal.
You must have assets on your balance sheet permanently because your personal, physical assets which cover your liabilities during your active working life decline and are exhausted over time. You must accumulate income producing assets during that active working part of your life and that income must increase over time (as liabilities inevitably seem to do). The act of taking an asset off your balance sheet to pay off one of life’s many liabilities is an act of wealth destruction and we strongly discourage that behavior. The act of taking money and adding it to your permanent assets is that act of wealth creation and leaving them there is that act of wealth preservation.
Our job as wealth managers is accomplished by helping our clients understand exactly what assets and liabilities are and what the consequences of their behavior relative to them means to their wealth. As your asset manager, we’re acutely aware that our physical and mental assets wear out over time and our job is to help you accumulate income producing - and growing - assets.
We want you to pay yourself handsomely. Let's talk.
In a life filled with an endless stream of liabilities (our wants), you need a strategy you can rely on that works for you so that you don’t have to, and that can withstand any economic climate.