Buy assets, not liabilities

By Randell Tiongson on August 10th, 2011

One of the cardinal rules to achieve financial security is this: Buy assets, not liabilities.

How do you do that? It’s simple… buy or investing things that will potentially increase in value in the future or provide some form of income or return — that’s buying an asset. When you buy things that will depreciate in value over time, or even require more money or upkeep — that’s a liability.

Here’s an overly simplistic example. Buying an iPhone 4 on a plan from Globe. I can choose to get a plan wherein I will put out about 10,000 that will require me to fork out about P2,000 on an average plan for voice, texts and data — or I can use that money to buy stocks from Globe (or PLDT) and keep on buying more shares every month which will also make me practice peso cost averaging. If you opt to have your iPhone and the plan that comes with it, here is your scenario: after the customary 2 year lock period, you would have spent about P50,000 on your bills plus the P10,000 handset cost, a total of P60,000.00. Should you decide to sell your iPhone at Green Hills after 2 years, you might get P6,000 to P8,000 still. Not bad you say?

Here’s the other scenario had you chosen to invest the money instead in buying Globe (or PLDT) stocks. Let’s assume that in the 2 year period, the total value of the stocks increases by an average of 1% per month through stock price growth & dividends (it can actually grow much more). Here’s how it may look out:

Well, I can’t argue the fact that you may also loose some capital investing in Globe (or PLDT) stocks in a period of 2 years but I’m pretty sure you won’t wipe out your whole investments as the said companies are blue chip stocks, profitable & provides good dividends. In anyway you look it I would think that you’d have more money in investments as against spending it on a liability. You can chose to be a customer of Globe (or PLDT) or an owner of Globe (or PLDT).

9 thoughts on “Buy assets, not liabilities”

Hi Randel. The last time we met was at Chinkee Tan’s seminar last March 2011 I think at the SM Mega Trade Conference hall – Millionaire Mind. This article is very helpful indeed. Instead of reading about endless gossips and showbiz rumors, Filipinos should instead be reading blogs dealing with financial education like this one.

I think the computation is somewhat 10% per month not 1% per month… Gaining a 3-4 bagger per annum is impossible for PLDT and GLO at their current funtamentals…

already corrected.. many thanks.

Cool post Randell.

Randell,

Thanks for the reminder. I used to make that kind of a mistake in the past, buying liabilities in the past, such as memberships such as a proprietary share in a resort in Pampanga and a time-share in a Condo near Tagaytay. They have not brought me a returns, rather only loss of value. As money became tighter, I also learned to use my head more in making decisions, buying assets rather than liabilities, My stock picks may not have all been stars, but they are no losers by any means. I guess the difference is that while I was younger I was not really too concerned with my retirement years, thus, did not mind the obvious pitfalls, but looked at only the leisure time aspects.
Thanks for your reminers, always!

Dan Reyes

Thanks Sir Randell for putting better analogy on this article. Nice. See you on Friday.

Thanks for this post. Any tips on how & where to buy stocks? Haven’t tried but am intrested. Have you heard of VMobile? What do you think of that business?