On… Accumulating Wealth vs Generating Income

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Recently my wife asked me how my investing is going and how much I am earning. It is a straightforward question but the answer is anything but simple. Why? Because investing is not like opening a lemonade stall where you can report your monthly sales/profit or a regular job where there is a monthly income (unless you’re doing trading which is similar-to but not the same as investing).    


So I could go into the details of investing but that’s not the simple answer that she is looking for. And if I just reported the dividends I received as my investment earnings, it would not do investing justice. I thought a little more about the question because I was sure it would not be the last time I will hear of it. Sure enough, a month later, when I met up with an old friend he asked me the exact question. This time around, I was kind of ready.


Most people understand property investing (most people that I know at least) and I thought that would be one way for me to tackle this question. Stock market investing can be compared to property investing (the intention of this post however is not to compare the pros and cons of investing in property vs the stock market).     


Generally, when you buy an investment property you do it for the long term. You either buy it for the capital appreciation or you buy it to rent out. Similarly, when you invest in the stock market you buy it for the long term – either for the stock price growth or for the dividend (or a mixture of the two). You don't earn if you don't sell and sure enough, that short and simple answer was enough to enlighten my friend. 


Unless I start trading stocks (which I guess is similar to flipping properties), it would be hard to say how much I am earning from my investment. And perhaps, that (trading stocks) might be what I should do. Otherwise, I am just accumulating wealth and not generating income.

Comments

  1. yfMarch 21, 2019 at 2:01 PM

    Good post as well

    ReplyDelete
  2. KenboryMarch 21, 2019 at 6:08 PM

    Thanks! 😃

    ReplyDelete
  3. AnonymousJanuary 4, 2020 at 11:03 PM

    Your points are spot on! Where i am from, we're lucky that there is no tax on capital gain, as compared to property gain tax.

    ReplyDelete

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