What kind of assets do we build first? Which one gets a priority?
Physical Assets which are primarily Illiquid
or
Financial Assets which are mostly liquid
Exceptions aside – since there are assets which are physical & liquid (gold) or financial & Illiquid (privately held equity etc.)
Unfortunately, there isn’t a straight jacket answer to this question of, Which one do we build first?
But, the Uncommon Common Sense says…. Liquidity first & so Financial Assets first
Well, isn’t it true that we can create liquidity (cash flows) from the physical illiquid assets….acquiring them first?
Yes…we can
But what does it entail – LEVERAGE/ BORROWING?
Is it wrong to borrow? NO, as long as it’s within the scope of our Ability to Repay
And, how is this ability to repay assessed by the lender? Our Earning Capacity (Liquidity) & or our existing physical or financial asset to pledge
Bottomline…. wherever we go, all roads lead back to one variable called Liquidity.
At the end of the day, we can’t pay our bills, buy a home, lead a comfortable life, pay for health education etc. with illiquid physical assets 😀 We need Cash on Call
To close…..
Build Financial & Physical Assets, but ensure that adequate Liquidity is always maintained
Balanced Diet & Balanced Money management