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. 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 keep up with inflation after fees.
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) However, selling off assets at a later date to provide cash flow may not be a prudent methodology. 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. Logically, converting some assets to an annuity is excellent advice 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 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 that may or may not provide the income you will need over your life expectancy. It is essential 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 investment you can learn and become an expert at and let this one investment be your primary 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 the 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 also generate enough cash flow in your early years to become financially independent and retire early. Forego building assets until you are comfortable with the income you receive from your investments.
Investment and advisory services are offered through Herrington Financial Services, Inc., a Registered Investment Advisory (RIA) firm. This article's information does not constitute an offer to sell securities or a solicitation of an offer to buy securities. This article is for educational purposes only. All information in this article is the expressed opinion of the author and not Herrington Financial Services.