Balance sheet investor, not a profit and loss investor.

Several months ago we were passed on a story about John Howard, Lenoir County NC farmer, who has made very good in his life financially.  He made a comment that he was a "balance sheet farmer", not a "profit and loss farmer".    Now many people would have no idea what he was talking about, but the phrase rang loud and clear in our ears since that is what we do as an investor and up to then never had a name to call it.  

A balance sheet farmer and a balance sheet investor are essentially the same, in that the approach is not to count your profits and losses for the year but to add up your balance sheet and see if you gained assets over the period.  Balance sheet investing along makes one consider the LONG TERM approach with your assets, and not how your balance sheet looks over just one year too.  So many people look at their annual income and say I am rich or I am poor and be done with it, but for those who succeed long term financially that is not the key to success.  The deal here is to be like a squirrel and accumulate assets over time.  Just making money is pointless to good financial health if all you do is spend the income on things and experiences.  You end up no better off at the end of the year than when you started, all be it you might have enjoyed some of your time.  Owning things is usually an emotional experience of buying it, amusing yourself for some time, and putting on a shelf to likely never do much with it ever again. Balance sheet investors instead buy something like a mutual fund, a house, or anything that appreciates in value over time.  Something that pays a dividend via cash flow like a business or appreciates if nothing more via inflationary pressures.  Gold, Bitcoin, or anything that does not have a positive cash flow is useless here and does not enhance your balance sheet over a period of time, other than to give you some emotional comfort.  Those who allow their balance sheets over time to create wealth trust me enjoy much more emotional pleasure via financial security than anyone who just spends much of what they earn. 

Now investing for balance sheet gains, can take several avenues depending on your style.  It can be as simple as taking some of your income and salting it away on a regular basis into a good mutual fund, it can be investing in your business expansion, it can be taking on a failing business that you believe you can turn around, it can be buying real estate, or any number of alternatives as long as it produces a cash flow or has a future appreciative value via that cash flow.  Everyone has their level of comfort investing, but you must INVEST, not save your money in a insured bank account at the local bank or credit union.  Yes even a saving account has a small balance sheet gain annually, but that at best only keeps up with inflation.  One must invest, or in essence, take a risk to gain at and above inflation thereby keeping your true balance sheet growing. 

Over the years having met many people I find most are divided between those who want wealth accumulation over time and those who just see money as something to buy something with at the moment.  Sadly the latter are ill prepared for emergencies and generally never retire with much other than Social Security and/or a pension.  Neither provide long term stability or a decent standard of living when the human body will not allow one to work daily.  

Finally let's note a balance sheet investor does not panic or concern themselves with short term profits or losses, instead concentrating on long term balance sheet gains.  So a down year might make the investor take another look at where they are invested and consider, but they only alter those investments if they see better opportunities for long term gains. 

We suggest most people use a S&P 500 Index fund, we like Vanguard, and take a regular amount out of your paycheck and invest over time allowing compounding to increase your balance sheet.