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Asset Class #1: Paper Assets

Take a poll of where the average investor puts his or her money and you’ll find that
most people invest in paper assets. Paper assets are investments like stocks, bonds,
and mutual funds. Retirement accounts where you can invest in stock options, stock
futures, and foreign exchanges are another variation. Paper assets also include real
estate investment trusts (REITs) and exchange-traded funds (ETFs). Whether you are
investing for capital gains or for cash flow via stock dividends, there are many choices
for paper assets.

The Pros and Cons of Paper Assets

While paper assets represent an easy asset class to get in and out of, for the average
investor, knowing what to buy and when to buy it can be a difficult skill to master; in
fact, most investors are only making an educated guess or following the advice of a
friend or financial advisor. Many find it difficult to beat-the-market on a consistent basis
for any length of time. Additionally, money invested in a stock is tied up in that stock
and will only provide you cash flow if the company choses to pay a dividend.
On the plus side, technical and fundamental analysis methods—like those taught in the
Rich Dad Coaching Paper Asset program—can help you make more informed investment
decisions. Learning how to read charts, identify trends, and dissect a company’s
financial statements are all ways to enhance your investment research. Add option
trading to the mix and you will understand how to make money not only when the
market is going up, but when the market is going down as well.

Asset Class #2: Commodities

Commodities include metals (gold, silver, copper, etc.), food (grains, corn, coffee, sugar,
etc.), and raw materials (oil, gas, cotton, etc.). Commodities are generally a capital
gains, or loss, investment, and you can buy future contracts of any commodity through
the future exchanges. If you are new to commodities, start small and build your financial
education. For example, purchase a silver coin and then watch its value increase or
decrease in your daily news. Your financial IQ will go up.

The Pros and Cons of Commodities

Because the price of commodities is tied to supply and demand, this asset class can
prove to be very volatile at times especially when compared to the other asset classes.
For example, weather or sudden changes in the geopolitical landscape of a country
can affect the prices of commodities. This volatility equates to higher risk, especially for
the uneducated investor.
If you are trading in commodities futures (agreeing to buy or sell a specific amount of a
commodity at a certain price on a predetermined date), you are making a bet that the
price of a commodity will be higher or lower in the future. If you’re wrong at the time the
commodity is to be bought or sold, you can end up losing your investment and in some
cases, need additional capital to finish the transaction.
On the plus side, commodities—gold and silver, in particular—are a hedge against
inflation and the falling value of currency. As inflation causes the prices of goods and
services to increase, the price of the commodities used to produce those goods and
services can increase as well. As the commodity price increases, the value of your
commodity investment increases as well.

Asset Class #3: Business

This is an asset that people are becoming more aware of with television shows like
“The Apprentice,” “Shark Tank,” and others. You can invest in your own business or
someone else’s private business or company. The whole point is to generate a return
back to you, the business and your investors and/or lender. Just be sure to do your
due diligence and analyze the project, the partners, the financing, and the business and
management team before making a business investment.

The Pros and Cons of Business

The ability to work hard and be a self-starter isn’t necessarily a pro or a con, but just
a reality of the asset class. Starting out, your business will only grow at the speed by
which you grow it.
Investing in a business is not for the faint of heart. If you crave the security of a steady
paycheck that comes from being an employee, you’ll need to come to grips that your
income can fluctuate. There will be dry spells and times when your resources are
stretched to their breaking point. All of this is part of being an entrepreneur.
However, one of the biggest pros of investing in your own business isn’t even financial.
It is that you are pursuing your passion. Instead of spending your time and energy
making someone else rich, your hard work is going towards building something that will
help create the life you desire. The fruits of your labor will belong to you.

Asset Class #4: Real Estate

Real estate is a favorite investment class for many—including Robert and Kim—because it
fits a tried and true formula for financial freedom. Real estate investments either
provide cash flow from rental properties or capital gains from buying and selling (flipping) a property.
As an investor, you can choose from four different types of property: residential, industrial,
commercial, and undeveloped land. When choosing one of these investment
vehicles, you should be knowledgeable about the local real estate market, general
economic forecasts, and tax realities. If you are getting started, working with a Rich
Dad Coach can help you not only know how to find this information, but know how to
decipher it.

The Pros and Cons of Real Estate

Like any investment, real estate possesses its own set of risks that you need to
account for in order to be successful. To begin with, real estate isn’t liquid.
Selling a property takes time. However, if you have purchased wisely and the property is producing a
positive cash flow, you probably won’t want to sell it.
Many people will tell you to stay away from real estate because of having to deal with
bad tenants and property repairs. (It should be noted that the majority of these naysayers
have never actually invested themselves.) While these types of risks are real, there
are ways to help minimize their impact. A good property manager can help you screen
for and find the type of tenants you want to rent your properties. In addition, a trusted
property manager can help stay on top of needed repairs all while minimizing your dayto-day
involvement with the property.
One of the biggest pros of real estate is that you can use leverage, or the ability to use
other people’s money (OPM) to purchase the asset. For a relatively small amount of
money, you can end up buying more real estate than you could with any of the other
asset classes. For instance, if you had $10,000, you could buy $10,000 of stock or you
could use that same amount as a down payment for a $100,000 investment property
and use the bank’s money to fund the rest. Granted you’ll be taking on a $90,000 liability
to purchase the investment property, but when you consider that rents from the real
estate purchase will help pay down the mortgage, real estate keeps looking better.

What Assets Will Give You Financial Freedom?

When it comes to choosing investments for your financial freedom, it’s a personal
choice that depends on your specific goals in life. And while it might be overwhelming
at first, start small. Set your goals, research and increase your financial education and
then take action. Many people have changed their life for the better by investing in
assets, and you can too.
What one-step are you going to take today on your journey to financial freedom?

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