Updated: Jul 16, 2019
The third richest man on earth, Warren Buffet does not like gold as an investment. Why? Well he likes productive assets, meaning assets that produce value, and thus can fundementally increase its value. We, at The Decrypter, agree with him.
Sure, gold and Bitcoin may be a store of value, but as an investor, you do not only want to preserve your wealth, you want it to grow. A, historically, sure way of investing with growth is by investing in productive assets.
Here is what Buffet has to say on the matter:
What he says in the end about people being right to run from paper (fiat) money, but gold being the wrong thing to run to, is quite interesting. Running from inflatonary, centralised currencies is one of the main reasons for investing in cryptos, but I must be the Buffet of cryptos here and say that running to a so-called "store of value" is not the right thing to do in the long term. Productive assets exist even within the crypto space.
So why would a productive asset outperform a non-productive one? Well, the answer lies in what the asset does for you. The goal of investing is to end up with more money than you started with, however much that is, is up to you to decide. A productive asset will give you higher wealth growth if its price increases, lower loss if it decreases, and a gain even if price stagnates.
Say that you have a asset that has a passive ROI of 10% (this can be from staking, dividends, itnerest etc.), if the price increases 10% in a year your ROI will be 20%, if it decreases by 10% your ROI will be 0%, if the price ends up being the same, you will still have a ROI of 10%.
Passive income is so powerfu, in fact, that of the total return of the S&P 500 from 1930-2017 42% was from dividends
(https://www.hartfordfunds.com/dam/en/docs/pub/whitepapers/WP106.pdf). This means that if you were not investing in productive stocks you would have missed out on almost half of the returns of the stock market. This is not even taking into account the power of reinvesting your dividends.
Because passive income is paid out directly to you, it means that you do not have to sell your asset to get your return. This makes it possible for you to reinvest the income in the asset making for exponential gains:
Now I believe this is epecially true for the stock market because if you hold a stock that is not paying dividends its only use is giving you a share of the companies assets in case it were to file for bankruptcy, but even then, first the company's loans will be paid and then the preffered shares which means that you will probably not get anything. Or if you hold alot of share you may be able to vote on company matters, depending if the stock has voting rights. Thus if you hold a stock that is not paying dividends you are either anticipating it to do so, you are buying a company with a price to asset ratio of below 1 and hoping for it to go bankrupt, you have so many shares that you have an impact on company matters or it is just plain speculation.
Cryptos are different because a good crypto has a usecase, meaning that there is value in holding or using them, thus creating organic buy pressure outside of speculative purposes.
Still, as stated earlier a proudctive asset will boost your gains and dampen your losses. If a crypto can be staked, for example, it also has a usecase: To secure the network and with that earn passive income. This passive income, except directly providing you with income, will indirectly create buy pressure thus driving the price up in the long run.
I am not saying your portfolio should consist enteirely of productive assets, especially not your crypto portfolio. Cryptos with good use cases have an intrinsic value which you can profit from by buying it under that value and selling at or above it.
However, I am saying that you should allocate a part of your crypto portfolio to productive assets especially in this bear market as the ROI from productive assets increase as its price decrease and simply holding your unproductive assets are just loosing you money right now.
Even if we are talking stocks or cryptos, productive assets should be a staple of your portfolio.
If you wnat an example of a good productive income generating crypto you can read this: thedecrypter.com
/Alex - The Decrypter.
Note: Invest at your own risk and always make sure to research your investments thoroughly.