3 types of wealth to invest in and how it applies to real estate
Sustainable wealth through real estate explained.
The great debate on what is best to invest in has been going on for years. Most contribution to the discussion, as I see it, is simply personal preference and opinion. I am a firm believer that the best investment for you should be one that you are passionate and knowledgeable about (my opinion). When your investments lack passion or knowledge they tend to also lack focus and diligence surrounding the investment. When this focus and diligence is lacking your investments may not produce sustainable returns.
For me, I am passionate about real estate and I know others who are passionate about stocks, or precious metals. Do you know what the differences are within these 3 investment choices, (Stocks, precious metals and real estate). They indeed all fall within 3 very different investment types; let’s take a look at them. The differences may surprise you.
3 types of Investment Wealth
As we grow older we tend to get more purposeful as we look closer to see if our investment dollars are creating sustainable investment returns for our wealth building portfolio. To that note, understanding the different types of wealth helps you to determine the best investments for your sustained future. For those of you who are familiar with the Rich Dad Poor Dad books by Robert Kiyosaki you are aware he, as well, discusses these 3 investment classes in great detail.
I used to think this topic would be too complicated for novice readers, but after re-reading one of Kiyosaki’s books I have reconsidered. Every investor, regardless of experience, should be familiar with these wealth types and their differences.
Is when you invest in direct ownership of a tangible, physical goods or resource, such as precious metals, gold, silver or diamonds. (Or in our case of real estate , owning income producing property that produces goods or resources such as a gold mine, diamond mines or farmland)
Also known as production wealth. Simply stated, this is wealth that is created out of the capacity to create more primary wealth. For example: in real estate if gold, diamonds and silver mines or farmland is primary wealth , the mines that produce that wealth or the production company that rents the farmland to raise cattle, chicken or milking of cows are known as secondary wealth. These productions produce the wealth
Tertiary wealth is actually paper that have a claim to that wealth, such as mutual funds, stocks and bonds and yes--even our cash currency. Tertiary wealth is generated giving it less value and less control, (such as the printing of money). When the government prints more money the value of that money goes down. As you have no controls to the amount of tertiary wealth infused into the system you then have no controls of the value of this wealth. The more (paper claims) that is generated the less valuable it becomes, as the constant printing of money devalues the dollar. In the case of Real Estate REIT’s (Real estate investment trusts) would be an example of a tertiary investment within real estate.
Your top wealthiest investors invest in primary and secondary wealth. The above example of tertiary wealth is why you see the top wealthiest people investing in primary and secondary wealth. Because it has limits to the amounts generated and therefore has more sustainable values.
When markets start to collapse those who own tertiary wealth are typically the first to fail all they had was a claim to the riches and are always the last to get paid. Those who owned the primary and secondary wealth positions always have their tangible resources.
Tertiary wealth is all too often wealth that government produces as a tool to keep markets propped up. Owners of these claims to riches are often very passive investors who hope and pray their values will climb and make them rich someday. Sadly many of the investors in tertiary wealth lack the total understanding and definitely lack the controls of these investment vehicles.
I mentioned I am very passionate about real estate. This happened for me organically as I was surrounded by a family who owned real estate. As I grew older and wiser I realize my passion is also secured because real estate is also sustained as primary and secondary wealth and well, if I cannot get excited about that, I just cannot get excited. You are all aware of my fondness of sustainable investments, and frequent writings on the topic.