Many people ask, as soon as they realize that I (having 25 yrs of experience) track investments, for advice on their personal savings. I always answer, “That is a complicated matter that would require understanding your personal goals and abilities.” The question keeps coming and must now be answered in some detail.Focusing on two main goals; preparing for retirement and for your children’s future. Your retirement plans may involve a smaller and more secure home, an income that can meet your basic expenses and grow to preserve the lifestyle you want indefinitely and of course, good health insurance. Your children’s future plans is always much more complex, funding formal education and purchasing weak assets (Cars & Clothes) will not replace proper guidance.
Your ability to save is popularly measured at one-third of your earnings, noting that your full earnings will also include your employers’ contribution to your Pension Plans, Private Jobs & Other Income (bonuses & commissions). Some people may look at their monthly expenses and think that they cannot save, not realizing that when they purchase assets or reduce loan principals (loan payment usually include principal & interest) they are in fact saving and increase their net worth. If you were to look at your expenses yearly, most people will find a bonus or commission that they have not allocated towards paying expenses; this can be used to reduce debt and purchase assets, hence saved. It all comes down to the type of assets you buy or invest in.
Strong Assets provide additional income and grow in value, such as Real Estate, Stocks also known as Equity Instruments and Bills or Bonds also known as Fixed Income Instruments. To remove any confusion let me state that All Financial Institutions; Credit Unions, Banks, Trust, Insurance Companies and Mutual Funds put money to work in a combination of these Strong Assets. The principle remains the same no matter the size of the Investment.
Real Estate can comprise of your own home or rental properties. In the case of your own home, your savings or home equity is equal to the difference between the assessed value of the premise and any mortgages or loans outstanding on it. Therefore, each and every time you pay, you are actually saving (thus investing) that principal amount. However, economic factor constantly adjust the value of real estate, so without spending any additional money, your assessed market value can increase, this represents Growth.
In the case of rental properties, your savings and growth are the same as in the case of your own home, what is new is the income component. A common example is that, as your children leave the nest, the family house maybe considered too large, so you may renovate to build an apartment for yourself and rent out the larger area. Hence this rental becomes Income.
Commercial Property (Hotels & Malls) owner having made a large investment operate in much the same manner, constantly seeking more rental income for a smaller space while encouraging economic activities to increase the assessed value of their properties. Smaller Investors can also benefit from income and growth in commercial properties through Real Estate (Mutual) Funds, with growth in its net asset value and income distributed through dividends.
The present banking (sub-prime) interest crisis is an opportunity for REFs.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
