If I had a pound for every time someone asked me this… then maybe Id have between £5 to £7.
Oddly, people are not as obssessed about returns as one might presume – but it plays a huge factor.
Whilst returns are important there are many more things to consider when make a decision about where to invest our wealth.
There are two ways to measure returns:
- Growth in value.
Growth in value is the obvious one that every looks at – it denotes how the assets appreciate in price over time.
Yield is the rate that the asset throws off income relative to its value.
“Returns” can be either one or both of these things. So we cant just measure returns as the only metric we also need to know how these returns are constituted i.e. how much is growth in value and how much is yield.
Most of the time I find what people really want is yield – this is the thing that will give them additional cashflow therefore allow them to reduce their reliance on work very soon.
This could mean that they drop a day a week at the dental surgery.
The issue is that most of the time their investment strategies focus on assets which are designed to prioritize growth in value.
Broadly speaking – Investing in your ISA and Pension is not advised if you wish to prioritize yield.
To paraphrase – investing in these accounts will not give you “passive income”.
If you wish to prioritize yield (what some call “passive income”) within your investing, you should consider the following assets:
- Property (long game generally – yields tend not to be that high)
- Purchasing/starting a business (riskier but true scope to generate passive income)
The other alternative to this is an investment startlingly few people talk about yet is one the most powerful – Investing in your skills and knowledge.
This is the investment that Ive seen pay huge returns. One can increase their income to such a degree that they basically dont have to work – this is how the passive income lifestyle SHOULD look.
The more you know.