Tuesday, November 18, 2014

Planting Fruit Trees or Timber Trees

Look at your paycheck as seeds.

You have two options - to consume it or sow it in the ground. Consuming the seeds of your labor gives you a temporary euphoria, a funny kind of short-term happiness, and it can get addictive.

The second option however, grows to become a tree in the long term. The grateful tree thanks you by bearing fruits that you can pluck or offering it's branches for timber.

If you have started investing, you're planting trees. 

The question is, should you plant Fruit Trees or Timber Trees?

Fruit Trees (Cash flow investing)
When you're planting fruit trees, the focus is on the frequency, quality and quantity of fruits produced by the tree.  
Examples of fruit trees are dividend-growth stocks (monthly dividends), rental properties (rental income) and relatively passive side-hustles (online income/e-commerce/writing e-books) that produces some monthly income. 
Planting more fruit trees ensures that there will be food on your table, every month. 
You can consume those fruits or reinvest them for more fruit trees.

Timber Trees (Net worth/Value investing)
Timber trees, on the other hand requires continuous nurturing for wood that you can harvest in the future. 
Value investing (buying low and growing value) is something that boosts your net worth but whenever you need timber, you have to cut off the branches/trunks of your tree - effectively reducing the number of trees you have in your farm (portfolio). 
While fruit trees offer a steady flow of resources, timber trees offers more gains (if you choose the right kind of timber).

While there are other types of 'trees' that offer a mix of 'fruits' and 'timber' (e.g. dividend yielding index funds), there is some truth in the saying that 'spreading your capital over too many asset classes (diversifying) is dilution.

As I'm focusing on 'White Collar Freedom' and early retirement/financial independence, growing Timber Trees like Warren Buffett does not excite me much because hoarding net worth has never been the objective of this journey.

At this point in time, I'm leaning more towards planting fruit trees that will keep bearing fruits.

The fact that I'll have fruits on the table every month, without having to chop off the branches of my trees is exactly what I need.

I'll just need to figure out how to plant more fruit trees.

Are you a Fruit Tree or Timber Tree investor?

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