What goes through your mind when one says “forget retirement”? We’re not inferring that you’ll be working till you’re 70 years old or that you should stop investing in your future years, but, how about this for a change in thought. What if you could invest in your retirement; and be able to enjoy the returns from those investment dollars today? We’re actually suggesting that you can have your cake and eat it too – right now!
For years, people have been socking away lots of money into investments they hope, in the long run, will be of greater value than today. Take a mutual fund for example…buy it today for $10.00 and at some future date, sell it at $15.00.
Retirement strategy used here – buy low sell high.
But what we experienced and learned since 2007, with the credit crisis and financial recession that followed, many investments did not fare so well. Many of those retiring during this period likely had to rethink their strategies as their retirement portfolios dropped some 30%, 40% or more! In fact, some even decided to continue working to make up for the shortfall in portfolios – ouch!
This was and still is challenging for those whose strategy was strictly relying on the appreciation factor to fund their retirement years. Sure, their investments have recovered somewhat, but that is no consolation when you wanted to draw an income and now find that you can’t withdraw as much as you thought before.
A better strategy could have been investments that provided a positive cash flow – today – like real estate for example. The cash flow from such assets would replace your income earned prior to retirement. You wouldn’t want sell these income producing assets because, even if they depreciated in value – the income still continues.
The point here is this… cash flow is King! Consider mixing up your investments to include some or all of it, to provide you a flow of income now. The cash comes in whether you’re working or not – this is where having your cake and eating it too comes into play!
Had the asset mix for many of these retirees, generated a positive monthly cash flow like real estate or even a good dividend stock or fund would, the decision to retire during one of the most severe recessions in recorded history would have been a little easier to cope with.
Cash flow vs. Appreciation
The Q’s definition of the Financial Balance Point™ is this: “When the income from your investments equals or exceeds your work-related income.” This is simple enough, when you have the discipline and determination to stick to a plan.
If you began to accumulate assets for the sole purpose of producing predictable, positive cash flow, would you redefine your investment choices? Clearly, you would begin amassing assets that provide positive cash flow today as opposed to appreciation tomorrow. Don’t get me wrong…appreciation is a good thing…but not the only thing.
A recent discussion with a friend illustrates the point. He purchased a property in 1999 for $57,000. By 2006, the property appreciated in value to a whopping $235,000 – an obvious real estate market gone wild! Lets fast forward to 2009, that same property swung back to be worth $60,000 – a market’s knee jerk reaction to oversold real estate.
Asked if he felt he lost by this swing, his reply was, “Nope!” He went on to say, “These are cycles with no predictability, I didn’t care as much for the appreciation – it’s a bonus – and I am sure through the coming years it will slowly climb up again.”
His original intention was not to purchase the property for its appreciation potential, but rather for its cash flow opportunity. “My cash flow went from $625 a month to now $975”, he remarked. “On paper, it seems like a massive loss of capital, but that was equity the market created in its frenzy and doesn’t impact me whatsoever. My actual cash in hand does affect me and increased through the years as the market itself adjusted for inflation. Now imagine multiplying the extra $350 in cash flow, times many properties, and you’ll see it becomes a very healthy financial situation.”
The property has long since been paid for, and it continues to provide positive cash flow for him each and every month no matter what the market condition is.
How many of your investments are doing this for you right now? They may have gone down in capital value, but are they producing positive cash flow for you today?
Sit down and review your portfolio. Think about including some positive income producing assets – like real estate. You can always re-invest the cash flow to buy more assets and free up your earned income to take care of immediate needs – like paying off your mortgage or other non-productive debts. Maybe even take a nice vacation and experience a trip of a lifetime!
Either way, what’s great about this is…you’re eating a nice slice of cake – now – not only when you are retired – enjoy!