Pick an Asset

People will tell you there are a virtually unlimited number of things to invest in. These people are trying to make you feel overwhelmed. There are only four classes of assets out there. I'm going to tell you what they are and how these assets make money.

1) Stocks : Sales people make revenues.

2) Real Estate : The price of a place goes up and you bought it when it was down.

3) Commodities : The price of a thing goes up and you bought it when it was down.

4) Bonds, Loans, Debt : Debtors pay interest to Creditors.

So as you can see these financial terms really only represent the stuff you see every day, people, places, things and debt.

You may be thinking "one of these things is not like the others" and you would be right. Debt is the complicated part of finance. It is the part orthodox Catholics and Muslims have a moral issue with. So it is the part I will say something about.

If you borrow money do it at a low rate of interest, under 5% annual.

If you loan money do it at a high rate of interest, over 6%.

If you borrow a million dollars at 5% and loan the same million dollars at 6% how much money do you make for doing nothing each year?

$10,000

This $10,000 dollars has many names : interest rate differential, spread, marginal profit and bank rate. But don't let them fool you. Debt done right is always a way for someone to borrow from Peter to pay Paul and make a profit.

Lastly, this is not a pitch. Debt has it's risk. Let's say Peter stops loaning and Paul stops borrowing or worse. Debt is a contract between two parties not a magic spell. I thought you ought to know that.

-David Caro-Greene