“And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
– Thomas Jefferson
Letter to John Taylor
28 May 1816
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Some people say ignorance is bliss.

I say, however, that most of us here in America would benefit tremendously from a better understanding of the meaning of the word ‘asset’ as it relates to the world of finance. Our collective lack of understanding about the nature of financial assets has brought many of us face to face with the realization that it’s really difficult to have a great life when you are homeless, jobless, hungry, and seemingly without any financial options.

How has this happened?

How can this be?

If you look at the situation carefully you will see the consequences of what has become an almost universally accepted set of financial assumptions based on systems that have worked out OK for most Americans since World War II, when we found ourselves on the winning side of a conflict that positioned the dynamics of global power squarely in favor of U.S. dominance for more than 50 years. Frankly, the political, business and financial leadership of the U.S. has been enjoying, and, some of us would say abusing, the advantage of this dominant position for many years – to the point where these leaders now say it is OK for major banks to call something with no value an ‘asset’ so their books don’t reflect the reality of the fact that they are pretty much bankrupt*. You and I, of course, will not receive that sort of preferential treatment and must instead face not only the consequences of our own poor financial decisions, but also the fallout from *really* bad financial behavior of our “leaders” and the resulting mountain of public debt.

[* Let's go ahead and define the term 'bankrupt' so we are all on the same page about what I am saying here. Wikipedia.com states bankruptcy is "a legal status of a person or an organisation that cannot repay the debts owed to creditors".]

Take a look at the categorized list of financial assets below to get a feel for the kind of financial resources that should be a part of your own financial portfolio:

Business Asset:
Your business is an asset when income exceeds the expenses of operating the business.

Real Estate Asset:
Real estate becomes an asset when the income from rents exceeds the carrying costs (I define carrying costs as all expenses involved with owning and maintaining the property).

Commodity Asset:
Here is the Wikipedia definition of commodity at http://en.wikipedia.org/wiki/Commodity:

“A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market.”

Basically, a commodity is anything you would buy at market prices regardless of who is selling it: gas, food, gold, silver, water, cotton, wheat, sugar – you get the idea.

Paper Asset:
Now here’s an exercise in obfuscation – do a Google search for the definition of ‘paper asset’. Good luck getting a consistent definition from those search results.

Here’s my own adhoc definition of paper asset: if you bought something as an investment and you can’t hold it, sell it to your neighbor, eat it, burn it for heat, or live in it – you probably have a paper asset. Stocks, bonds, futures, options, and other financial derivatives (including unregulated over-the-counter derivatives), Forex contracts, annuities, insurance policies – all paper assets. You supposedly own it – but any number of people, companies, and/or the government stand between you and your asset. Oh, I would also add one more criteria to the definition of ‘paper asset’ – the asset needs to provide you with income on an annual basis. If the paper does not bring you income then it is not an asset – it’s a liability that is costing you money. Yes, I know – this is a pretty difficult concept to take in because it means most of what is called a ‘paper asset’ looks way more like a speculation-based liability than a genuine financial asset. Hmmm… well, you know, if the shoe fits…

So, why all this fuss about the word ‘asset’ anyway?

Well, to put it bluntly, you need some real assets: Businesses that give you income every month. Real estate that provides you with extra cash every month. Commodities you can hold in your hand that have real value – commodities like gold, silver, platinum, a family garden, stored food, water reserves, maybe a solar power system. You know, stuff that can get you by when some employer lets you go, or when you get sick and can’t rely on your ability to show up daily at your job any longer.

Now here is a question for you: How many of each type of the above assets do you own? For many of us the answer is “not enough”, and for others the answer may be “none at all”.

If you find yourself in the position of not having enough assets then why not begin to take the above asset categories seriously and figure out how to acquire some of these items to offset all of the risk that has been created by our unstable and unsustainable political and financial systems? I mean, seriously, is it a bad idea to build a profitable business? Would you be disappointed right now if you had 25% of your liquid net worth allocated to gold and silver coins? Would a rental property that provides you $200-$500 monthly income be unappealing? How about a solar power system that reduces your monthly energy costs by $150? Why don’t we go ahead and ignore the poor example of those political, business, and financial leaders that flagrantly violate anything resembling financial integrity? Let’s reduce the risk to ourselves and our families by acquiring assets that help us to gain a measure of independence from the broken economic system surrounding us. Do you still have a job? Great! Use some of your pay to build a business that will provide income when your job eventually goes away. No job right now? OK – use all that time on your hands to come up with a workable business idea that helps people in your community, and then get educated about how to get it off the ground and make it happen! Does real estate seem more like a ball and chain these days than a valuable asset? Learn how to invest in real estate for positive cashflow and then go get a property that can provide you with additional monthly income. How about commodities? Gold and silver are great assets to hold when the government prints so much money that every dollar in existence becomes worth less (and less and less). Interestingly enough, gold and silver will tend to rise in price as the value of the dollar falls. This can help to protect your wealth from the crazy actions of those pesky and financially illiterate leaders at the root of our current economic troubles.

Stop thinking in terms of ‘money’, and start planning in terms of ‘assets’. Your financial future will change for the better!

P.S. – Here’s a simple and low-cost approach I use to help my own family to acquire assets that will enable us to hold and grow wealth for generations to come: Acquire Collectible Coins for Fun and Profit