Ouch! The mighty Dow has fallen to within a financial heart beat of its 1999 high water mark, boasting an average per year gain of less than one half of one percent in spite of several interim manipulations designed to improve the performance picture. The S & P 500 Average, an equally prestigious indicator of broader market movements, is nearly 13% below where it was at approximately the same time. Both figures reflect no investment expenses at all. So, in spite of the mostly ignored fact that neither index includes any income securities (bonds, preferred stocks, REITs, etc.), a reasonable person could well expect his or her portfolio market value to be well below where it was nearly ten years ago! Now that’s a fairly dismal scenario, but it’s the in-your-face reality for most investors as we move forward into what we all hope will be a more spring-like investment climate. Read the rest of this entry »
Cashflow: The Only Sensible Investment Strategy for the Twenty-first Century
First the Disclaimer: This is a thought-provoking article that draws upon real world examples, articles, books and websites that are readily available to the public. This article is not intended to offer investment advice. Any actions that you take in the market place should be the result of your own financial education and consultation with a licensed professional.
This is the conclusion of my 3 part series that began with Home Ownership: The Biggest Financial Scam of the Twentieth Century and was followed up by parts one and two of The Stock Market: The Second Biggest Financial Scam of the Twentieth Century.
What is Cashflow? Cashflow simply put is the flow of money. Positive cashflow is the revenue or income that a person receives from a job, investment or business. The majority of people derive their cashflow from their jobs. To the extent that they come to derive cashflow from investments and or businesses is the extent to which they will become financially free when their working years are over. Negative cashflow is the revenue that a person loses due to an investment or business.
Most people are taught to invest for capital gains rather than positive cashflow. Investment success depends on appreciation of the underlying “asset” rather than income production. This is the basis for “investing” in a primary residence or the stock market for wealth creation. Yet, success of the capital gains investment strategy is by no means assured. No one can guaranty that an asset will appreciate in value, despite the tendency to quote historical gains as justification for an investment today. The current housing and market crises highlight the fallacy of depending on capital gains to create wealth. The housing crisis alone will destroy billions of dollars of personal wealth. From the October 25, 2007 Joint Economic Committee report: Read the rest of this entry »