Dr. James, 1s:

How can I invest to increase my income? This is the most common questions that there is out there whenever it comes to the world of investing and actually, in my opinion, one of the biggest misconceptions that there is out there, or certainly, people do not necessarily have the most accurate representation of how it works, and I feel like it comes from people's not necessarily as developed as it could be understanding of how investing works, its mechanics, its dynamics, everything along those lines. So here's the thing if we want to invest, increase your income, how are we defining income? Income is the money that comes into your bank account at the end of every single month, not in 20 years, not in 30 years, not in 10 years, but in the here and now, realistically over the next month, two months, something along those lines, something short term, something in the more near term, because most people out there want to have more income coming into their bank account, more money, not because it's about money, not because money is the be all and end all, but maybe because it's going to help us achieve some sort of real world goal or some sort of real world objective, like more time off, more holidays, more a bigger house, better car, something along those lines, or even just having more fun, more time off, anything along those lines. So more income will help us with that. But, like I say, in my opinion most people's investment strategy could be more aligned with actually achieving that outcome or that goal. You see, there's two real objectives for investing. There's capital appreciation, as in growing the value of your investments, and also cash flow, as in income, and actually a lot of people are using assets which are more designed for capital appreciation rather than income, which means that they're taking the scenic route to achieve this goal and objective. But again, it all comes back to what one would like to achieve. But let's focus purely on income, as we've defined it in the here and now and really whenever it comes to investing. If we're talking about investing in financial assets, there's only really four categories of assets that anybody can invest in. Now, if we wish to trade, that is a different matter, just making that super duper clear. So investing is when we're using buy and hold strategies, strategies for the long term, where we're going to purchase an asset, hold it for 5, 10, 15, 20, 30 years, something along those lines, not dipping in and out of the market, not trading, where we're hoping to buy and sell on a one week, two week, maybe a month or so's time frame, something along those lines. That is a different kettle of fish. It requires a completely different skill set. I'm sure that I've done some content on the trading side of things in the dentist invest podcast before which is worth looking at. I'm sure I can do some more in future. Trading is not as easy everybody makes it out to be. You're going to see a lot of false gurus, false prophets on x, formerly known as twitter, who'll be able to, who espouse that they have that skill set. As I say, I am very skeptical about that whole world. It can be done. Rare is the person who actually has that skill set and even rarer is the person who is able to teach it and teach it accurately and teach it properly and like, and even when somebody is the mentee, so to speak, as in the person learning that skill set, do they necessarily have the aptitude and ability to do it? Potentially, who knows all I knows? All I'm saying is there's quite a few variables in there and that's not what we're going to focus on for the purpose of this podcast today. We're focusing on investing, which is what 98% of people out there are doing anyway. They're usually using a buy and hold strategy. So if we're talking about investing, there's only really four types of asset that you can invest in. So categorically, if anybody has ever invested since the beginning of time or has any investments in the here and now, then you must have chosen one of these four assets, because this is comprehensive and anything you can think of in the whole wide world gold, stocks, bonds, properties, whatever they all fit into these four categories. So, really, if we're going to invest we know this list is comprehensive it has to be one of these four assets. So let's talk about what the four assets are and their characteristics so we can select the best one relative to our goal. Okay, the four types of and lifestyle assets. So that's cash flow assets, business assets, growth assets and lifestyle assets. So if you're going to invest in a financial product, in a financial asset, it has to be one of these four things. Just want to make that super duper clear. So, whether we're aware of it or not, we've actually probably already invested in one of these four categories and I think, and what I often find, is that, through lack of context, through not understanding what our four options are. We often choose one that is not necessarily as aligned with our goals as it could be, because, likely, whenever you know all four, you'll be able to select the best one relative to what you would like to achieve. What they mean by that, we're going to get into that in two seconds, so let's go ahead and define the assets. So, what is a lifestyle asset? Let's start off with lifestyle assets. What are lifestyle assets? Lifestyle assets are assets that appreciate in value, as most assets are designed to do. However, the only real way we can recoup our investment from those assets is if we sell it. It doesn't generate us us cash flow, and they're usually things that we use on a day-to-day basis, hence the name lifestyle assets. So, for example, a house, your, your primary residence is a classic example of a lifestyle asset. The only real way you can unlock a return on your investment in your house is to sell your house and downsize and keep the difference in capital between the selling price and the new house that you have purchased. You can't sell a room in a house, after all, of course. So, like I said, it's a classic example of lifestyle asset. You cannot, you. It's a, it's a binary thing we can't sell part of it. We either sell the whole thing or we don't sell it at all. Another example is watches. Another example is cars, something along those lines. You can't sell part of a car. Well, maybe you can if we get into the nitty-gritty, but generally people share the whole thing, which is really cool, which is a good way of looking at it. So like, say, lifestyle assets. So when people say invest, their investment is their house and they want to increase their income, well, a lifestyle asset is not designed to do that. That's not the property of a lifestyle asset. Therefore, what we know is that, really, if someone's serious about increasing their income, well, the lifestyle asset cannot be 100 of their investment portfolio, can it? Because, like I say, it doesn't provide us income. It's literally the definition. So, anyway, that is lifestyle assets in a box right there, cool. Moving on to the next type of assets, the next type of assets are growth assets. What are growth so? Well, actually, sorry, just to recap on lifestyle assets, just one more thing the property of a lifestyle asset is that it's designed for capital appreciation, not cashflow, not income. That was the final thing that I wanted to say, just to draw a line under it. Anyway, moving on, next asset we're going to talk about is growth assets. What are growth assets? Growth assets are assets that are designed to appreciate in value. They may have cash flow, they may provide you some sort of income, but not necessarily. But their main purpose is to grow in value and appreciate in terms of their valuation, and then, therefore, what that means is we can grow our wealth. So what is a classic example of a growth asset? It's going to be stocks, stocks and or bonds, because they increase in value. Now, naturally, the thing about stocks is they throw off dividends, which is really cool because you own little shares of a company, so that's your share of the profits, so to speak. And the cool thing about bonds is they throw off coupons, which give us a percentage return. They give us a yield on the valuation of the bond. So bonds and stocks work similarly. In that respect, the big difference is well, there's many differences, but one of the big differences is how bonds are much less volatile rather than stocks, and that's why a lot of people water down their portfolio with bonds. But that's a whole other kettle of fish and argument that we could get into, which we're going to circumvent today. We're going to sidestep today whether or not that's actually absolutely necessary, the relative to the amount of times that people do it. In my opinion it isn't. But again, that's another podcast for another day. But anyway, they're both defined as growth assets. Now here's the thing. Let's break down the two components of the return on our investment whenever we invest in stocks or bonds. Like I say, it's going to be capital appreciation is in the increase in value of the actual asset, providing it goes well, not financial advice, of course. You have to DYOR on that one. And then the second return on our investment is going to be from the dividend, as in the payout that we receive from owning the stock. So, like I say, there's actually capital appreciation and the dividend. So there's actually two ways that we're achieving a return on the stock. So, like I say, there's actually two. There's actually, there's actually capital appreciation and the dividend. So there's actually two ways that we're achieving a return on the stock, which is what not everybody returns understands. So you know, when everybody quotes that the s? P appreciated by 10 every single year, year on year, since the 20s or the 60s, uh, depending on which source you look at. Well, where that, where that actually comes from, where that figure 10% actually comes from, is 6% appreciation of capital and 4% reinvesting your dividends, which not everybody knows. Everybody thinks it's purely from capital appreciation. Actually, in order to achieve that 10% that we talked about just a second ago, you need to reinvest your dividends into purchasing more units of the S&P, so to speak. So, really, if you really, really really want to grow your growth asset portfolio, you have to reinvest the dividends, because that's where the compounding gets really exciting. Now, anybody who knows anything about compounding knows that a 4% loss in growth every year actually makes a huge difference to the returns of our portfolio in terms of compounding returns, to the returns off our portfolio in terms of compounding returns. So the interesting thing to understand is that actually rein only not reinvesting your bond in reinvesting your dividends sorry and obtaining a six percent return versus reinvesting your dividends. Getting a 10 return is probably the difference between you retiring, between you retiring at 60 or 70 or being able to retire in your late 40s or 50s or something along those lines. Lines, of course, those figures are completely representative. There's a lot of variables in there. However, I'm just pulling out some typical numbers with regards to what we might be looking at. So here's the thing, here's the big kicker to understand the big takeaway from all of that If you sell your growth assets and you or not even necessarily sell them, just receive the dividends and don't reinvest them, you're actually delaying your retirement massively and inhibiting the compounding effect that everybody gets so excited about whenever it comes to growth assets. So when you invest in an ISA or a pension or something along those lines to achieve passive income via those methods, that is the huge downside and that's why actually they're not that practical to be able to achieve passive income via those methods. That is the huge downside and that's why actually they're not that practical to be able to achieve cash flow. So investing in a fund or investing in the stock portfolio is not typically designed to give us income unless we're able to play the long game, like 20, 30 years, unless we're able to let our assets grow to such a valuation that we're able to sell them off gradually and incrementally with time. But that only happens after the compounding occurs, which needs like 20, 30 years. So this is one of the big things to understand. That's one of the biggest misconceptions of all time. People think that they can invest passively in an ETF or in a fund portfolio or in an active fund and that they believe that they can use that for passive income. And the truth is you can. But, like I say, it's's really not advised and that's why a lot of financial advisors will not suggest that you do that, because it really messes with the cash flow modeling. Because, if you think about it, if you're only getting a 6% return and inflation is 3%, you've only got a 3% margin there on inflation, whereas if you reinvest your dividends then you'll have a 10% return, 3% inflation, then you've got a 7 margin, which is much, much, much, much, much more and significantly different. So, like I said, that's one of the biggest belief shattering things of all times, all time, whenever it goes to great growth, whenever it comes to growth assets, it's shattering the belief that people think that you can get passive income from them in the near term. It's actually way better if you let them compound first. But the downside to compounding with those sorts of assets and the 10% return is that it usually takes 20 or 30 years before you can actually receive some income from your assets, in which case you've already lived the majority of your life. So, like I said, if you want income in the here and now, actually there might be better solutions, and those are not the solutions that everybody is using, because I feel the most people use that solution generally because they do not necessarily understand that characteristic of growth assets. Anyway, that's growth assets done and dusted. Next type of assets cash flow assets. What are cash flow assets? Cash flow assets are exactly that. They're any assets that give us cash flow. What's the most classic example of that? Bidolet properties. Bidolet properties will appreciate in value, obviously, but they'll also give us cash flow in the here and now. Now, what's the difference between that and stocks, you might say, or I hear you saying well, the difference is that, whenever it comes to Bidolet properties, is there's no real downside to you actually receiving a yield on your property in terms of rental income. In fact, if anything, anything, it's an inherent aspect of that property. There's no real downside to you being able to take the rental income and put it in a bank account whilst the property is also appreciating as well. It's not going to inhibit it in any way. Naturally, you might choose to reinvest it, but, like I say, a cash flow asset is more orientated towards providing you cash flow. There's no, there's not necessarily any downside like what there is with growth assets, to re, to not reinvesting it. That's the key difference, right there. So, cash flow assets, as I say, most classic one is buy to let properties. Now let's talk about buy to let properties. Now again, property is not my forte, but from what I do understand about buy to let properties, obviously they're very heavily taxed in the uk, which is not necessarily a good thing. I think if you get a six percent rental yield, you're considered to be doing well, which okay relative to the stock market or something along those lines, particularly whenever there's such great accounts available in the uk which allow us to invest, basically tax-free, of course, d y d y o r on that one to make sure you're getting the right one for your goals and objectives, but just letting you know that they are out there, uh, so yeah, property, definitely not the gravy train that it used to be, because that six percent is usually pre-tax before we've paid for the mortgage on the property, before we've maintained it in terms of upkeep and done all the legwork and running around that nest that usually comes alongside having some buy-to-let properties or some rental properties is something to remember and, yes, I know, if you put it in a limited company, that mitigates it somewhat. However, there's still a fair chunk of it that you lose whenever it comes to. Well, yeah, the taxman, effectively, but yeah. But having said that, I've seen a lot of people who've been very successful in properties. Of course, the one big downside of property as well is it's so illiquid, and what I mean by that is it takes a significant amount of time for you to be able to sell the property should you wish to unlock some capital from it. That's why I've always been dissuaded from investing in it. I just don't like the thought of my capital being tied up so much. But, having said that, if you do want true cash flow and you are prepared to look beyond the downsides that I've just mentioned, well, a true cash flow or income orientated investment portfolio is much more aligned with cash flow assets, more than it is any of the other assets that I've mentioned so far. So, like I say, maybe that could be a solution right here, right now, but, of course, like I say, just be aware, very liquid, taxed pretty heavily and it's definitely not passive income per se, and I really think, one of my biggest takeaways from observing people who've done well in the property game it's not just part of what they do, it's not just a small portion of what they do, it's not just, it's not like they just dabble in it and they've done extremely well. These guys and girls are all in. It's all they do and they know everything about property and that's why they've been so profitable in it. So I think, if you're going to do it, really throw yourself at it, because those seem to be the people who do really well from it and get to the stage where they're like 36 37 and they're able to live off their property portfolio. It still can be done. It's not as easy as it used to be, but I definitely think it requires a huge amount of your focus and attention, and actually there may be other better investments out there, which we're going to come on to in just a second. So we've covered lifestyle assets, we've covered growth assets, we've covered cash flow assets. Now we're going to talk about business assets. Now this is. This one is an interesting one because this is slightly more ethereal than the three assets that I've talked about before. The three assets that I've talked about before are very strictly financial assets. It's either going to be a lifestyle asset, some sort of tangible thing that you can hold in your hand a car, watch your primary residence, whatever growth assets which are going to be in your ISA pension, something along those lines. Paper assets, stocks and bonds quite obvious and clearly defined what those are. Third type of asset we talked about cashflow assets, which are properties. Again, it's bricks and mortar. It's something tangible, it's something that you can hold, so to speak. You can touch it, you can feel it and, like I said, it gives you cash flow. So what it means is that, well, it's pretty, it's pretty. It's pretty clear what that is, whereas a business asset is an interesting one because, if you think about it, a business, the business, the business that you have, is an extension of your own skills and knowledge, and that's where things get a little bit ethereal. So let's talk about what a business is. It's a collection of systems and processes that produces value for someone else, or something else if it's B2B. So all a business does, or all a business lets you achieve, is to do that in a leveraged way, is to create more value per unit time because of those collections of systems and processes at a very fundamental level. So, do what do we mean by that? Well, obviously it's leverage. So we get people to do it on our behalf, or we have automations that provide it, that do that provide that value on our behalf, or machines or computers, or something along those lines. So, to a core, core, core level, there's always some form of leverage in a business. Again, that's a podcast for another day. If you want to read a really cool book on that, there's a book called the Almanac by Naval Ravikant. It talks about the four types of leverage that there are on this earth and that's something that I think about every day. Again, I'm not going to get into that today because that's another podcast, probably like a 30, 40 minute podcast in itself. Let's just talk about business assets. So what is business asset? Business asset we've just defined here's cool thing about, here's the. Here's the cool thing about businesses the upside is unlimited. You're not really limited to maybe, like 10 returns, like you're in a stock market, or six or seven percent returns, uh, six or seven percent capital appreciation and six or seven percent rental yields, like you are in the property market most of the time. And if we go back to lifestyle assets. Well, again, if you get double digit returns in lifestyle assets, you're doing pretty darn well. You really are. So we talk about business assets. This is the one true asset that can create financial freedom in the here and now. As soon as possible, because the upside is unlimited If you get a business that does extremely well. As soon as possible, because the upside is unlimited. If you get a business that does extremely well, you there is no cap on how much value you can provide for society and therefore there is no cap on how much yield you can achieve from that in terms of remuneration. But of course, the not so cool thing about a business is you have no idea if it's going to work out or if it's going to do well, and obviously that can be an incredibly stressful process. So a business is an extension of our skills and knowledge. So typically the path that is most convenient for most dentists whenever it comes starting a business is starting a dental practice, because naturally that's what we know, that's our background, that's our area of expertise. So it comes very easily to us to be able to, or at least easier than other areas, given that that's our sector and given that we know or we have an understanding of how it works and we can leverage. That cool thing about business assets is, as I say, well, the upside is unlimited. The upside to generate cash flow is unlimited and the upside to generate capital appreciation on the value of the business is also unlimited. The big downside for me is that there's no guarantee that it's going to work out. But, having said that, I firmly believe that, yes, there'll be variables in there that are outside of your control, but the vast majority of it like 90 95 is how well you know your stuff, not just when it comes to the clinical side of dentistry, but whenever, whenever it comes to the business side of dentistry, if we're talking about starting a dental practice, I actually firmly believe that business is a skill thing, and the vast majority of it is a skill thing, and how well, how skillful you are at running the business and how skillful you are at coming up with ideas and the ingenuity required to perpetuate the thing. So that is my firm affirmation. That is a little bit of an alternative perspective on business and how it works, but that's certainly what I seem to have observed as time has went on. So, really, if you do want brilliant cash flow and you do want an asset that's really going to appreciate and you're willing to put yourself through the trials and tribulations of running a business. In the context of your other three options, it really is the only option to give you more income in the here and now. And, by the way, starting a business doesn't mean necessarily starting a dental practice. It can also mean investing in yourself whenever it comes to your clinical skills and also your ability to monetize your dentistry, which is a slightly different skill from your clinical abilities. It's actually a skill you have to develop around that and I know that we're getting slightly ethereal now. We talk about those things but, like I say, the best remunerated dentists and the best remunerated dental dental practices that I've seen out there are not always the best clinical dentists. Naturally, it helps, of course, and we definitely. It's definitely our duty as a clinician to be the best that we possibly can for the benefit of our patients. I'm definitely not diminishing that. I'm just saying that there's another separate skill that needs to be nurtured around that to allow the remuneration to hit the heights that we would hope Our remuneration that fairly remunerates us for the value that we're giving others. Food for thought. So, even if you're not necessarily a dental practice, remember you are a business. You're a business within a business, as an associate, as self-employed. So, like I said, remember how I said, this asset class gets a little ethereal. This is exactly what I was getting at. So, really, in my opinion, if someone seriously wants to boost their income, think about the profitability of your clinical dentistry or think about starting a dental practice. Those are the two things that can get you the quickest results in the here and now. In the context of those four assets we talked about a second ago. Remember, this list is comprehensive. If you've ever invested, first thing to decide is do I invest, do I not want to invest? If you don't invest, well, we're always going to be exchanging time for money, that's for sure. So the second that we decide that we eventually want to stop doing that, which I think is advisable for everybody we know that the answer is yes, I would like to invest in something. Then it has to be unequivocally and categorically one of those four asset classes and it's just about choosing one asset or collection of assets that is most aligned with your goals. Always remember that little framework. I usually draw it out as a little quadrant. Just to remind me lifestyle assets, growth assets, cash flow assets and business assets. It's got to be one or a combination of those two things. Pick the collection, pick the selection or combination of assets that best serve you and your goals and what you'd like to achieve. If you'd like to boost your income, well, that's one of the best frameworks that you can use in order to achieve that. Naturally, that's super high level. Everything that we talked about in this podcast today, each and every one of those asset classes. In order to gain those level of returns that I talked about just a second ago, you have to know what you're doing. That's where expertise comes in. But before we do that, we've got to pick the right path so that we know what we're getting into and also we can achieve our goals in the smoothest and most efficient manner.