No. 8: Rich people know the difference between an appreciating and a depreciating asset

Posted Dec 5th 2008 6:30AM by Daniel Solin
Filed under: Getting Started, Rich in America, Personal Finance

This post is part of a series where personal finance expert Dan Solin looks at money secrets that help the rich stay rich. See more.

Rich people own both appreciating and depreciating assets. They know the difference.

Depreciating assets decline in value.

Appreciating assets increase in value.

It is the appreciating assets that permit rich people to purchase the depreciating assets, and not the other way around.

Rich people get rich by buying assets that increase in value slowly over time. They build up businesses. The buy and hold real estate.

They invest in the stock market differently than most individual investors. They determine their asset allocation and buy and hold a globally diversified portfolio of low-cost stock and bond index funds.

Rich people understand that cash is a depreciating asset. They don't keep large cash balances because they know cash is eroded by inflation. By converting cash into properly allocated investments -- even in a very conservative portfolio -- they know they can significantly increase the return on their assets.

Rich people prioritize the accumulation of assets. Sure, they buy fancy cars and fine clothes, but not at the expense of investing in appreciating assets.

Warren Buffett is a perfect example of the wealth-building habits of rich people. He lives in the same house he bought fifty years ago for $31,500.

It has appreciated to $700,000 today.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).

Tags: assets, electronics, jewelry

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Reader Comments (Page 1 of 1)

12-05-2008 @ 7:10AM

Bernie said...

The Warren Buffet example is cheating.

He's probably the only Billionaire living in such a modest home.

1-02-2009 @ 9:47AM

John said...

This article is pure fiction. The "rich" buy depreciating assets through their corporations and take tax deductions for same. They take a small taxable salary but take a lot of stock and options which become taxable at capital gain rates. Lastly, the appreciating assets that the article speaks of, antiques, art, etc. are valueable only in the eyes of the elite or the very top of the pyramid. The real secret to buy appreciating assets is "insider information" which is passed around over the depreciating lunch table.
As to Buffet, "The Oracle" owns his first house because of his wife's sentimentality. Also think of what a $31,500 home was over fifty years ago...mansion / ranch / farm..then think of where it is located...Omaha, Neb. and what values are there. Everything is relative.