Investing: Don’t Teach Your Man to Fish

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‘Give a man a fish and he wants chips. Teach a man to fish and he’ll complain about how boring fishing is. But build a fish trap and you can both laze about all day long in retirement.’

– Anonymous monk from Pembrokeshire

Those monks from St Dogmael’s Abbey understood wealth better than your financial advisor. They lived near the river Teifi in England 1000 years ago. And were faced with two problems. They had to feed a bunch of monks with fish, because that was the only meat they were allowed to eat.

But they had better things to do than stand on the beach or river bank all day long. We’re not sure what they did spend their time doing, but the important thing is that they managed to do something other than desperately try and make ends meet.

So how did they do it? They built a giant fish trap. It’s more than 250 metres long and was discovered by Google Earth.

If that seems like an odd spot to put a fish trap, that’s because the river and coast have moved in the last 1000 years. Blame it on climate change.

Anyway, the point of this fish trap is that the owners could use its passive income to generate free time. Passive income is income you don’t have to earn with your labour. Picking up fish still takes a bit of work, but it beats other methods in terms of time.

Notice how the trap is V shaped? That’s so the fish would collect in the same spot and not all over the trap. It’s easier to pick up the fish when they’re all in the same spot. Crafty monks, weren’t they?

If only you could hire them as your investment advisor today. Sadly, Henry the VIII’s thugs got there first.

Still, you can learn from the monks and their fish trap when it comes to paying for your retirement. Assuming you want to give up work in favour of leisure at some point, you have several options. Scrounge off your kids or the government (everyone else’s taxpaying kids).

Slowly sell down your assets over time, gradually becoming poorer and more worried about whether your assets will last. Or, you can use the St Dogmael’s Abbey investment strategy: Generate enough passive income to pay for your retirement.

The Fish Trap is an Income Asset

The monks never hoped their fish trap would increase in value. They just collected the fish. It was an income stream to them, not something they would sell to live off. Imagine what that did for their peace of mind. It would be difficult to pray while your tummy is rumbling and the monastery’s bank account is dwindling.

But if you’ve got your trusty fish trap generating fish while you pray, it becomes much more enjoyable.

That’s the kind of retirement you want. The monks probably took to gardening with the free time their fish trap gave them. They did it out of need, but you might want to do the very same thing in your retirement. Or perhaps you could go travelling to Europe. It’s entirely up to you.

The key is to look for investments that generate income, not capital gains. If that doesn’t sound sexy enough for you, consider this:

Fish Traps Get the Girl

Back when Australia was the Unlucky Country, a convict escaped from his overseers. We don’t remember his name, just what the documentary said about how he survived. He spent a rather long time out in the bush as a loner or tag-along of Aborigine tribes.

During one of his stretches as a loaner he built a fish trap. Next thing he knew he was rather popular with the ladies. That’s because his wealth didn’t diminish as time went on. His fish trap just kept on giving.

It’s the same with certain types of investments. They don’t expire or disappear while they generate the cash you need. Even long after you’re gone, someone could be benefitting.

That makes you rather attractive. It means a steady stream of new clothes, cars and holidays. Not the slowly worsening state of your lifestyle along with your finances.

That’s Capital

The Bonner Family Office is dedicated to the idea of keeping fish traps in the family. It advises members how to go about keeping and growing wealth that lasts for many generations. Here’s how they explain the point we’re trying to make:

‘What the Rich Have That Everyone Else Doesn’t…

‘Wednesday, October 3, 2012

‘Today, I want to return to a core family office concept: capital. Having capital — wealth that you don’t spend — is what distinguishes the rich from everyone else.

‘That might sound obvious. But having capital…especially family capital…is different from just having money. Money comes and goes. Money can be spent and wasted. Capital cannot.

‘You invest capital carefully, deliberately and as part of a larger plan. It’s deployed in ventures that have the highest chance of success — such as a family business ¬— where you have a clear competitive advantage and intimate knowledge of the business niche.’

You get capital by saving and investing. But the kind of investing you should be doing is very different to betting on the stock market going up. That’s an immediate gratification or loss. You don’t know which you’ll get.

Instead, investing should be about steady investment in assets that provide a steady stream of income beginning at some point in the future. You’ve got to build a fish trap one rock at a time. Only when you’re done does it really work. Then you sit back and relax.

The Big Risks

Henry the VIII sent his thugs to St Dogmael’s Abbey many years ago. There’s not much left. And the fish trap is probably a home for fish these days. Nothing lasts forever. Either the government or mother nature will get you eventually.

But our bet is that the fish trap fed dozens of monks at a time for hundreds of years. Not bad for a pile of rocks.

So what’s the equivalent to a pile of rocks in the ocean in today’s term? How do you generate income that pays for retirement? There are a couple of options. We’ll be revealing how a $10,000 dollar investment became a $20,000 a year income stream when our newsletter hits the online presses.

And that was off a household name business about a quarter of Australians use every day. Subscribers will find out which four investments might manage the same feat in the future. The trick is one page of paperwork.

Regards,

Nick Hubble
for The Daily Reckoning Australia

From the Archives…

Liquid Paper
28-09-2012 – Greg Canavan

Banks versus the Farms
27-09-2012 – Greg Canavan

A Familiar Sequence: Print, Spend, Crash
26-09-2012 – Bill Bonner

The Hamburglar’s Budget
25-09-2012 – Dan Denning

The Cheeseburger Police
24-09-2012 – Dan Denning

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
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light a man a fire and he is warm for a night, light a man on fire and he is warm for the rest of his life

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