A few days ago @Teodor, a colleague who writes here on Publish0x, suggested that I write an article explaining the difference between saving and investing.
I liked the proposal, and so I decided to start this new blog that I call “SirGeradThe1st Grimoire”.
The name of the blog was suggested to me by one of the brightest stars on this platform, @PV Mihalache. I did not know what a "Grimoire" was. I used google translate and it didn't help me much.
Now the problem was twofold. I didn't know what the word meant in either English or Spanish, because I had never used the word Grimorio in Spanish before. Then I went to the Dictionary of the Royal Spanish Academy, and it gave me this result:
Translation: Book of magic formulas used by ancient sorcerers.
Wow!, a lot of people treated me as crazy, idealistic, or out of date, but never as a sorcerer. But I like the idea of an old book because the topics of this blog are very old formulas that our grandparents and great-grandparents used to build their lives and their economies, with the aim of achieving financial relaxation. Ultimately, I think that each of us seeks that, to be relaxed about money, and not necessarily accumulate fortunes to buy yachts, private planes, and mansions on the French Riviera, or am I wrong?
Image of Peter H in Pixabay
So let's get to this first topic.
There are only three types of assets:
1) Capital Assets, which are those that pay you some type of dividends.
2) Commodities, which are those that are transformed to achieve some type of energy and/or consumption.
3) Store Assets, which are those that are treasured because they maintain their value.
(Several analysts think that ETH is the only asset that can perfectly fit the three asset classifications. I prefer to consider ETH as a commodity and use it to leverage other investments).
The first and best-known rule of all time when it comes to personal and/or corporate finances, probably invented by the Egyptians 4500 years ago is:
Never put all your eggs in the same basket
Image of OpenClipart-Vectors in Pixabay
At the University they give this rule a more polite treatment, saying that it is about "risk diversification."
This means that, in the first instance, we should have some of the three types of assets shown above.
But when is a position considered a savings and when an investment?
A savings position has low risk, low profitability and returns an interest.
An investment position has a higher risk, a higher return and returns a dividend.
What are examples of Savings?
Saving is a purchase by an individual of an asset or an instrument that represents an asset, which is not going to vary much in value over time and which is going to provide an extra moderate-income without too many setbacks. The individual has confidence in the asset or trusts the selling party of the instrument because it has a track record and sufficient support. Assets subject to savings are of the "Store Assets" or "Commodities" type.
- Gold
- A loan that receives interest
- A bond or negotiable obligation of a company
- BTC
- A commodity related to one's own business that will be necessary at some point in the process
What are examples of Investment?
Here things are very different, because investments need "management", and then, we enter the field of risk depending on completely unpredictable structures. Any company and/or project is subject to risk. There are market risks, scenario risks, timing risks. Investments can fail or can generate high returns. The difference between revenues and expenses in a given period, minus taxes, that is, the profitability, is distributed among all investors in the form of dividends proportional to their investment. This requires the famous DYOR that all analysts propose before investing because the number of factors is so large and its projection so unpredictable, that a personal touch is always needed, what Paul Getty, a twentieth-century oil magnate, called an internal sensation like "the erection of the member" when walking on a field in which he "knew" there was underlying oil.
In addition, investments can refer to assets that are outside of the own business, or within, with the aim of improving it. Never lose sight of the idea that you don't have to put all your eggs in the same basket.
The assets subject to investment are of the “Capital Assets” and “Commodities” types.
- Real Estate
- Company shares
- ETH
- Options (puts and calls) of commodities
- Assets related to your own business, be it hardware or software
Now, is there an advisable proportion of how to distribute personal revenues between saving and investment?
No. This is like trying to define what the best Beatles song is. There is no way to agree, even when there are formats that bring opinions together.
Image of Gordon Johnson in Pixabay
I give you my protocol but bear in mind that this may vary, as it has in fact varied in recent years, due to very different circumstances. You can't predict the future, and it better be that way. It's more fun.
My job for more than 30 years is strategic consulting for small businesses, specializing in franchising and commercial distribution techniques. I founded my company at the end of the '80s, and I grew that way. Over the course of these 30 years, I never had the same income for two months in a row. Which made me develop a predator-type preservation instinct, that is, to think about withholding part of the revenues to spend moments of drought, and living in a permanent state of "Winter is coming".
Image of TeeFarm in Pixabay
In this way, and always with the aim of wanting to be relaxed in financial matters and not to enrich myself, I put together my economic structure as follows:
- 33% of the revenues for the period (whatever its length) must be used to pay the expenses of the period, including company expenses, salaries (included mine), rents, taxes, supplies and others
- 33% savings
- 33% investment
My European immigrant ancestors at the beginning of the 20th century have a lot to do with this scheme, especially my grandparents.
Image of Maurojr83 in Pixabay
During the different decades, and especially considering that in Argentina it is impossible to think about saving in the local fiat currency, the allocations that I made to savings and investment took on different shapes. But since 2011, when I met Bitcoin, two things happened that changed my life: the first is that I had the revelation that someone had designed for me the anarchist structure that my grandparents had taught me (and then I was no longer a dreamer!), and secondly, most of the savings and investments I made since then, were directed to the crypto-sphere, in its different modalities, according to the scheme I detail below (what I detail below is the remaining 66% of revenues destinated to savings and investments, once discounted 33% corresponding to expenses)
- 33% Savings in BTC (80%), and other coins such as ADA, LTC, DOT (20%)
- 20% Investment in ETH that allow me to make infinite investments in the DeFi ecosystem (remember I think about Ether as a commodity)
- 13% Investment in DeFi projects, whose protocols I carefully study, in terms of who is the team that handles them and what is their unique proposal
As I constantly say on my Tokenomics blog, I am basically interested in the fundamentals of projects, and in that sense, I research and learn. It's not that I'm not interested in technical analysis, but for investing I prefer fundamental analysis.
So, my friend, discipline yourself and start building your relaxed financial future.
In future entries of this new blog, I will describe what fundamental analysis is, technical analysis, inflation, the operation of the banking and financial system, the role of a Central Bank, personal finance, in short, everything that we are interested in to achieve financial relaxation.
As usual, none of the things written in this post are financial advice and are not intended to replace personal research.
Thank you for reading!
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