What is wealth? In essence, wealth is the ability to exchange something you have for something you want. Value is what someone else will give you for your assets. If you have a stack a 100 pieces of paper, you don't know what it is worth until you try to exchange them. That stack may be napkins, $1 bills or $100 bills. If you have food on your face, that napkin may be more of use than the $1 bill. But that $1 bill could be exchanged for 20 napkins at the right place. So the value of something depends on the utility, time and place.
Money makes it easier to define wealth. But wealth is fleeting, which is why those of great wealth diversify. That painting you bought for $5 million might not fetch a buyer for $3 million. That $5 million in the bank may be devalued by inflation. That farm you own may be wiped out be a flood. Which is why those of great wealth pool their risks together. They buy insurance and sell portions of their assets to others.
A good investment is one that can be converted quickly, a liquid asset. It must have a means of establishing its value. Currency is traded frequently to establish its value among other currencies. It is easier to determine the value of a share of stock which is trading a million shares a day than a house which has only a few perspective buyers and exchanged in the frequency of years.
Tuesday, February 24, 2009
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3 comments:
I HAD stocks...they became totally worthless. My house still has value.
That is a RISK in stocks, that they lose all value. Most houses do not lose all value (at least there is the land), but there is nothing to say all houses will not lose some value. If houses were EXPECTED to lose value, then that would play a part in negotiating it's value. The current financial problems are caused in part because the buyers and the banks EXPECTED that houses would gain value, therefore, in what they thought would be the worst case, they would just resell the house.
And at least you've had a roof over your head for however many years you own it. Usually for a cheaper price than renting.
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