Instead of thinking in terms of returns and profits, another perspective is to think of ownership.
Holding onto cash is like holding on to credit. It never grows. It’s an intermediate state. Money is never meant to remain in one place, it’s only a means of exchange.
Hence let’s establish that eventually we need to take money from one place and put it in another to ensure that this newly owned asset grows in value over time.
Now what should we buy?
A rare car, a rare painting, a home, a piece of land, a piece of machinery, a shop, an office space, something rare like gold, diamonds? What should we buy that will increase in value.
Or in other words what should I own?
Now here we can either create or buy ownership. I could either start a small shop and become an owner of the business but if I’m busy with my job then I will need to instead buy ownership of someone else’s business because I’m incapable of running the business.
Now should I buy a business, land, fixed asset?
Land and assets have the characteristic of being fixed and they only grow in value because people are ready to pay more for them eventually.
But the fascinating thing about businesses and companies is that they are constantly trying to grow and morph into generating more profit. Hence if done right, they have the most powerful ability to create value and hence be more valuable.
Now what business should I buy?
If I feel I’m capable of understanding what businesses are expected to do well then I can simply buy ownership in them via the stock market.
If I do not have knowledge then I can bet on all businesses in general by investing in index funds, but then I’m actually betting on market conditions and not on the individual businesses.
If I buy a fund, then I’m betting on the fund managers ability and not trusting my own instinct.
At the end of the day the goal is to buy ownership. If we buy ownership in the right businesses we grow when the business grows. There is no need to have a mindset of selling such ownership till the time we continue to believe in the business.