Investment portfolios

An investment or asset portfolio is basically a collection or basket of assets you own. This basket of assets serves a certain objective which is largely wealth preservation, growth, and income. There are many assets to choose from when filling your wealth basket. Choosing the right assets to include in your wealth basket is a very valuable skill.

There are generally three categories of assets to choose from. The first kind of asset involves some kind of ownership of something which either grows in value and/or generates income. We sometimes call this an equity investment. For example, if you own shares in a business; you in essence own equity in the business and are entitled to dividends. You can create and invent valuable ideas, products, technologies, patents, brands, etc. You can also own equity in your house, farmland, precious metals, and other commodities.

The second kind of asset involves lending money to someone else and earning some kind of interest. For example, I can lend the government money by buying treasury bills and bonds. I can also lend money to my bank when I deposit cash into my account. However, the bank doesn’t appreciate my services and that’s why it pays me very little interest. I would rather lend the cash to an insurance company by buying unit trusts and other insurance products. I can also lend cash to various long-term retirement/provident funds like NSSF, etc. You can also lend cash to friends and family but be careful because family and friends have a bad habit of not wanting to pay back!

The third kind of asset which is rather intangible and difficult to quantify is investing in your earning power. You can tremendously increase earning power by developing rare and highly valuable skill sets. For example, we are heavily investing in our daughters’ coding and computer literacy skills. The skills the girls are acquiring are not available in the local schools and will become very valuable in a decade or so. For example at 7 years old, our eldest daughter can now design and program basic phone apps. This kind of investment in your skills can really create a highly valuable asset that can yield an income for several years down the road. Personally, I have four degrees and have read hundreds of books. I do this because I know that the right knowledge is far more valuable than any piece of land I could ever acquire.

So there you have it. Think of your investment portfolio consisting of three kinds of assets. Things you own; money or capital you have lent to someone else; and your earning power. It takes time and energy to build a portfolio that can sustain you but it is definitely possible.