In last blog we talked about power of compounding and its effect on long term investing.

 Now I am going to talk about concept adopted from book Rich Dad and Poor Dad.

Now let us look at accounting part ,what should we consider as Asset and what as liability.

Asset: Any investment which generates income is an asset. Eg :Real estate if purchased and gives you rental and appreciation is an asset.

Many accountants would give you complex defination of asset with mathematical formula. 
 

Liability: Any investment or thing which takes away money or dono generate income is a liability. Eg : Real Estate if purchased but is not giving rental would be a liability why?

Lets look at it this way you buy a commercial property but are not able to get tenant you need to pay basic municipality tax, electricity bill, and property maintainance expense. So in a way your property value is reduced. It becomes asset only when you sell it for profit.
 

How to over come this well you should buy an open plot instead of office, showroom or house for investment because you can use open plot for nursery or renting and it is easier to maintain.

So rich always invest in assets which generate income like bonds , stocks , rental generating real estates etc while most of middle income family spend there life first taking debt and then repaying it. Like consumer loans, home loans , credit card debt etc. 

Lets now take example of gold we consider it as an asset but actually physical gold is a liability. How?First jeweller charge you premium on prevailing gold price when you buy it . Eg if you buy 10 gm gold coin you will pay price of say 45000 plus 500 rs premium for coin. 
In this you also pay gst which is non refundable. For the coin bought by you you need a bank locker which also has an early rental so again money is drained.

When you sell it they give you current price but less gst so again 3% is deducted so there is loss in profit.

But sovereign gold bond is an asset it gives and annualised return of 2.5% per annum . You have lock in period of 8 years and also you can sell without gst deduction and when issue they are issued at discount to prevailing price. Think about it. 
We should invest in old investment avenues but with new method to maximise gain.