This REALLY is the end of the World.....

bluey890

tomterm8 wrote: »

Personally, I think of being rich as having sufficient unencumbered assets to produce, given a sensible investment strategy, an income without needing to work. Wealth is the unencumbered asset part of the equation.

This is full of subjective terms tomterm, it's not clear what you mean.
Could you suggest a portflio of assets which (only just) qualifies as rich to you..

tomterm8 wrote: »

The key I think is good investment... that is, you can be poor even with cheap debt if you use the debt foolishly. The key to good investment is, in my view, simply that the asset you purchase should have the characteristics that (a) it produces positive cashflow and (b) that it pays off any debt within its predicted life without need for capital appreciation.

Cheap debt equates to opportunity, opportunity is wealth. Hence the term, a wealth of opportunity . Capital appreciation is important in evaluating a good investment portfolio. The BoE is mandate targets inflation, why would you not want to hedge against this? The value of money changes over time, it is important a portfolio takes account of this.

tomterm8 wrote: »

In my case, I haven't invested in property because (a) and (b) have not yet been satisfied... people have been relying on the increase in real cost of the property. I think that's a slightly risky strategy. Any asset class can go up or down in cost, but if you invest in something with characteristics (a) and (b). you will eventually become wealthy.

If you want to give me £100,000 pound now. I'll give you £5,001 a year, in arrears, for the next 20 years.
This satisfies your (a) and (b) criteria. It is not a good deal though?

tomterm8

bluey890 wrote: »

Your statement is full of subjective terms and therefore refers to an unquantifiable amount.
Please sugest a portflio of assets which (only just) qualifies as rich to you..

I would say assuming a reasonable return on investment, without taking undue risks, £2.5 million would be the minimum amount you need to own net of debts before I would qualify as rich.

It is very subjective, the amount of money you would need to qualify as rich could easily be different to the above, since it depends on your risk profile, and the standard of living you would wish to become accustomed to.

bluey890 wrote: »

Cheap debt equates to opportunity, opportunity is wealth. Hence the term, a wealth of opportunity . Capital appreciation is important in evaluating a good investment portfolio. The BoE is mandate targets inflation, why would you not want to hedge against this? The value of money changes over time, it is very important a portfolio takes account of this.

In a well diversified portfolio, the mix of assets you own should appreciate by at least the same amount as inflation.

bluey890 wrote: »

If you want to give me £100,000 pound now. I'll give you £5,001 a year, in arrears, for the next 20 years.
This satisfies your (a) and (b) criteria. It is not a good deal though.

No deal, bluey, since all the money I have is invested, I would have to borrow the £100,000 from a bank... now, if you can guarantee to pay me more money than the bank charges me interest, so the cash flow remains positive, I'd probably do it. I admit, though, you'd also have to pay a risk premium.

bluey890

tomterm8 wrote: »

I would say assuming a reasonable return on investment, without taking undue risks, £2.5 million would be the minimum amount you need to own net of debts before I would qualify as rich.

It is very subjective, the amount of money you would need to qualify as rich could easily be different to the above, since it depends on your risk profile, and the standard of living you would wish to become accustomed to.

If you had access to £5.0million of debt, over a long term, at a very low rate of interest. You would be rich. extreme case to prove the economic principle.

tomterm8 wrote: »

In a well diversified portfolio, the mix of assets you own should appreciate by at least the same amount as inflation.

No deal, bluey, since all the money I have is invested, I would have to borrow the £100,000 from a bank... now, if you can guarantee to pay me more money than the bank charges me interest, so the cash flow remains positive, I'd probably do it. I admit, though, you'd also have to pay a risk premium.

I am pleased you recognise the time-value nature of money, and that it's not as quite simple as your original (a) plus (b).

macaque_2

'Laughter is the best medicine'. Thats what they always told us. I wasn't laughing when I discovered that the cheque that came through post saying 'Pay Macaque £10,000 a month for the rest of his life' turned out to be a phoney. I shall return it to them in their hour of need. 'Pay Reader's Digest £10,000 a month all for as long as they like'. Tradable value of this cheque is 0.00000000001p.