Further exploration on the principle

Since it is all about building assets(i) that generate consistent income, does capital gain matter, does buy low sell high matter, then? You ask.

Yes, but...

Yes it does. Capital gain provides you the financial capabality to invest in more assets(i) that generate income. With a capital gain, you have more cash to buy asset(i).

But, the process of wealth building does not stop at mere making a great capital gain. So after a killing in stock market, you are holding $50,000 more cash. Are you going to deplete this newly earned capital? If you keep your $50,000 in cash or place it in unit trusts, it is going to be depleted one day. Your cash or unit trusts will have a hard time chasing after inflation and provides for your old age without depleting the $50,000 itself.

But if you put this money into an asset(i), i.e. real estate (for rental), business (for profit), stock (for dividend), that generates higher return and raises with inflation. You are now creating a consistent stream of income without depleting your $50,000 value.

Ok, unless...

Unless you argue, you will put back the money in stock market going for a bigger kill. You say, "yes, the income is not consistent and I may even suffer losses but I don't depend on this income. I will survive even if I lose all $50,000. So I am willing to take risks for a greater gain. Time is at my side as I am young. My age reduces my risk as I have longer time to wait for investing gain." Sure, then. Go ahead. This is one of the strategy to build assets(i)!

But, ultimately...

But ultimately you will be old one day. Time will not always at your side. Erratic nature of capital gain will not suit your profile anymore. And you will probably depend on the income from your financial assets(i) instead of human assets. Then, put these huge capital gains that you have accumulated through out your youth into asset(i).

You should have realised by now, income generating assets(i) is the key instrument for retirement planning.


Part 1 : The conventional idea
Part 2 : The breakaway wisdom: income and assets
Part 3 : Building assets(i)
Part 4 : Assets(i) planning
Part 5 : Further exploration on the principle

Quick takes
1. The principle in a nutshell
2. Definition of assets(i)
3. Classes of assets(i)

Classes of Assets

Generally there are four classes of assets.
1. Human assets: your skills, knowledge, labour, time, etc.
2. Paper assets: stocks (learn the basics), bonds, mutual funds, options, etc.
3. Real estates, and
4. Businesses

The key to effective assets planning is to find the most effective combination of the four in every stage of your financial life. You must then know
a. the strengths and the weaknesses of each class of asset,
b. how their strengths complement each other's weaknesses, and
c. your financial position in deploying a strategy


Part 1 : The conventional idea
Part 2 : The breakaway wisdom: income and assets
Part 3 : Building assets(i)
Part 4 : Assets(i) planning
Part 5 : Further exploration on the principle

Quick takes
1. The principle in a nutshell
2. Definition of assets(i)
3. Classes of assets(i)

Assets That Generate Income: Assets(i)

Assets(i) vs (common meaning) assets

Let us denote such income generating assets as assets(i) to differentiate it from the common meaning of the word "assets" which includes non income generating items like buying a big house for our own accommodation, etc. This will keep reminding us of the difference.

Set your financial goals in terms of sustainable and recurring periodical income. Maximize the income generating capability of your assets(i). As you grow older the income generating pattern should change. You move away your income generating assets(i) from human assets(i), i.e. your time and labour, to financial assets(i), i.e. businesses, stocks, real estates, etc. You must then remember to protect these assets(i) accordingly.


Part 1 : The conventional idea
Part 2 : The breakaway wisdom: income and assets
Part 3 : Building assets(i)
Part 4 : Assets(i) planning
Part 5 : Further exploration on the principle

Quick takes
1. The principle in a nutshell
2. Definition of assets(i)
3. Classes of assets(i)

Personal Financial Planning

How do you find the above ideas? Are the ideas helpful? Do you think it is logical? Does it rebut some of the misconception of common financial advice? We are keen to know. Just hit the "comments" text line below.

The Principle in a nutshell

The ultimate financial goal is to be so darn rich that such expenses like children's college education are like buying a movie ticket. You don't set a financial goal to buy movie tickets. Do you?

Ultimately financial planning is about planning of assets that generate income. The ultimate desired result is sustainable and continuous income, the means is building, managing and protecting the assets that generate such income. The GOAL is continuous income, the MEANS is assets planning.

Set your financial goals in terms of sustainable and recurring monthly income. Maximize the income generating capability of your assets. As you grow older you change your income generating pattern. You move away your income generating assets from human assets, i.e. your time and labour, to financial assets, i.e. businesses, stocks, real estates, etc. You must then remember to protect these assets accordingly.

This is the principle of effective financial planning. Simple and powerful.


Part 1 : The conventional idea
Part 2 : The breakaway wisdom: income and assets
Part 3 : Building assets(i)
Part 4 : Assets(i) planning
Part 5 : Further exploration on the principle

Quick takes
1. The principle in a nutshell
2. Definition of assets(i)
3. Classes of assets(i)