INVESTING FOR CASH FLOW
            If you cannot take it to McDonald's and buy a burger with it--IT IS NOT CASH FLOW.  Building assets in your investment portfolio is not a bad thing, but it should not be your primary goal.  I believe building assets for future appreciation is an excellent goal once your cash flow investments are set in place.  Far too many people are investing the wrong way by starting their investment plan only investing in stocks, usually expensive mutual funds, which may not even pay dividends.  Where is the cash flow logic in this plan? 
            When I ask people why they are investing I typically get the same answer, future retirement.  But, when I ask how they will use their assets in retirement their logic gets a little fuzzy, especially when I ask them how their assets provide the retirement income they need.  Of course, the frequent answer is we will sell off the assets a little at a time to provide income for us during retirement. (The 4% Rule—No today it is 5% or more) Now, this is where the fuzzy logic comes into the picture.  My next question is:  How do you know your assets will provide enough income for you during your retirement years?  It is amazing to witness the sudden silence permeating the room. Many retirement planners will suggest converting some of the assets into an annuity to provide the pension like income for retirement.  This advice is excellent until you realize the assets when converted to an annuity still will not provide enough income.   
            If you do not have a pension to provide income during your retirement years, it might be a good thing to create your own pension plan.  Yes, there is social security income which is only a supplemental retirement, not a full pension.  Naturally, cash flow is what you need for retirement, not assets which may or may not provide the income you will need over your life expectancy.  It is important to stay focused on ways to build a pension plan by working on creating cash flows from your investments. There are a plethora of investments to choose from which provide cash flow opportunities.  Find a cash flow investments you can learn and become an expert at and let this one investment be your main cash flow vehicle.  For instance, real estate investing.  Once you start generating excess cash flow you can branch out to other cash flow investments.  However, do not think you must manage real estate to be an investor, what about first lien mortgages or buying and selling real estate notes?  You could also purchase “turn-key” properties or triple net leased property.  If real estate is not your thing, you might invest in life settlements, oil and gas leases, and dividend stocks or become an expert at options or futures trading? You might even want to start a part-time business.  The point of the matter is finding an investment that generates cash flow.  Who knows, you might even generate enough cash flow in your early years to become financially independent and retire early.  Forego building assets because they will grow naturally while you are working on generating cash flows.                         
As always, let me know if I can help. 
    Gerald House MSM

“The Contrarian Investor”

Comments

Post a Comment

Popular posts from this blog

ARE YOU SATISFIED WITH THE FINANCIAL ADVICE YOU ARE RECEIVING?

Are you Satisfied with the Financial Advice you are Receiving? “If you can’t explain it simply, you don’t understand it well enough ” Albert Einstein How long are we going to subscribe to the typical investment advice on just building assets for retirement?   Is there a better way?   While we are talking about it, is investing only in stocks or stock funds really diversification?   When we have another stock market correction, will it only affect large-cap stocks? Small-cap ? Emerging markets? International markets?   Finally, should financial planners keep forecasting future results in their overly complex financial plans riddled with too many assumptions?   If you follow my blog, you will notice a common theme in my writing—typical financial investment advice has failed.   The baby boomer generation in retirement now validates the poor investment advice provided to investors in previous years.   What happened to the 401K?   Where are the defined pension programs?   What
Read more
The Yale Endowment Model         The Yale endowment model incorporates the mean-variance approach as described in Modern Portfolio Theory (MPT) designed by Harry Markowitz and James Tobin ( Yale Investment Office, 2017).  Markowitz (1952) based his theory on the idea of minimizing investment risks within the investment portfolio by enhancing diversification strategies designed to optimize an investment portfolio given any level of risk. The Yale Endowment Model, using this method, has changed its mix of investments from nine-tenths in stocks, bonds, and cash to just one-tenth in recent years.  Currently, the Yale Endowment model uses an alternative investment mix for the bulk of their investments to include private equity, real estate, leveraged buyouts, venture capital, absolute returns, foreign equity, domestic equity, fixed income, and cash and it’s equivalent.  Endowment models in general usually have a long-term investment horizon, but the use of alternatives far exceed most
Read more

Life Planning

Life Planning Gerald L. House MSM “The Contrarian Investor” As many of you know, I am not a fan of the term “retirement .”   However, this term still lingers throughout the financial service industry.   And, why not, financial advisors continue to promote financial planning using the old typical investment strategies because many people have succumbed to this thinking.   Nonetheless, a couple of new terms recently emerged challenging the way people structure their financial needs.   Life Plans and Holistic Planning Actually, “holistic planning” recently morphed into the new term “life plan .” This new term defines your life according to various stages and goals you defined.   “Life planning is a guided process by which an individual takes stock of his or her life, clarifies goals and challenges, and identifies the steps needed to move forward. A life planning professional can help address relevant issues and find resources - people and information - needed for a
Read more