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I am 27. I wanted to start a retirement savings account but my father explained that there would be much more profit if instead of a retirement account, I focus on making investments and building assets. Can lucrative assets be a alternate for retirement savings?

Note: I am based in Pakistan where saving for retirement is not common.

  • Why is saving for retirement not common in Pakistan? – Franck Dernoncourt Oct 22 '17 at 23:24
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    @FranckDernoncourt: People usually rely on children for helping them in their old age as parents let them stay at their place for a long time and invest in their growth. – user4884 Oct 23 '17 at 6:18
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Well... (in the US, at least) "making investments and building assets" is how you save for retirement. The investments just happen to be in the stock market, and the federal legislature has directed the US version of Inland Revenue Services to give special tax breaks to investments which are not withdrawn until age 59 1/2.

I don't know if there are such tax breaks in Pakistan, or what the stock market is like there, so I'm presuming that by saying, "building lucrative assets", your father is referring to buying real estate and/or becoming a trader.

Anyway, it's a good thing that you are looking so far ahead in life instead of only thinking of fast cars and pretty girls.

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Fahad, in finance we make a distinction between investments that tend to grow in value and assets that hold value. Investments that grow in value are generally related to investing in well-thought out businesses. Investments can be done in retirement accounts through stocks and bonds but also owning part of a business directly. Good investments make more and more money off the money you put in.

Common examples of assets include gold and other non-productive property like real-estate you don't rent or cars. You can even have some assets in your retirement account as many would argue government bonds behave like assets. All of these things tend to (more or less) go up in value as the cost of everything goes up in value, but don't tend to make you any excess money in the long run.

There is certainly a place for both investments and assets. Especially as a young person it is good to lean toward investments as you likely have a lot of time for the money to grow as you get older. As RonJohn suggests, in the United States this is fairly easy as retirement accounts are common there is a long history of stable financial law even in crises. Pakistan's institutions are fairly stable and improving but still assets and investments of all types can be riskier.

So, I recommend taking your father's advice... partially. Having some assets are good in riskier situations, but good investments are generally the way to grow comfortably wealthy. A good mix of the two is the way to grow wealthy slowly while protecting yourself from risk. You, your father and your neighbors know you local situation better than I, who has only visited a number of Pakistan's neighboring countries, so I can't really give more detailed advice but hopefully this gets you started.

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