Understanding the Difference between Income and Cash Flow

This is part 4 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Income and cash flow are not the same thing even though most people think they are.

Most people think in terms of how much they can safely take from their portfolio for living expenses. The correct way to think is how much they can safely spend from their portfolio for living expenses.

It is a big mistake to think that you should get the cash flow that you need only from portfolio income (dividends and interest) without ever touching your principal. This is an emotional issue that is sometimes hard for folks to overcome. By doing this, you can pay more taxes than necessary.

Investors need to focus on the total after-tax return of their portfolios. Selling stocks when they are have appreciated and using that money for living expenses is a far more tax advantageous way of creating the cash necessary for lifestyle.

Bottom line: The way in which you generate income can have a tangible effect on the growth of your assets as well as on the taxes you pay.

Managing and Judging Risk

This is part 3 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Many investors do not understand risk when investing. Generally, the longer the time horizon, the more risk you can take.

If you need money in the next 5 years, you should not be taking on long term risk. Best to keep the money in CDs and bonds so that it will be there when you need it. Don't put your financial future at risk by "betting the house"

Conversely, many investors also take too little risk. They focus on the short term volatility of the market rather than the long term growth potential. These folks typically invest in only money markets, CDS, short term Treasuries etc... even thought their time horizon is 20 or 30 years out. The result is that their portfolios may not even keep up with inflation so their purchasing power is greatly eroded. They will not achieve their desired lifestyle.

A good financial advisor can help you evaluate the risks in your life and design an asset allocation strategy based on your goals, time horizon and the amount of risk that is needed to achieve your desired outcome.

Bottom Line: Understanding your exposure to risk---as well as your time horizon and goals---can help you better protect your portfolio and make better investment decisions.

Clear Investment Objectives

This is part 2 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.


Most people invest their money with no clear investment objectives. Your personal portfolio must be in sync with your financial goals.


Specific strategies can be tailored to meet a single objective of a combination of several objectives.


For example.....If the goal is to grow your assets.....then your objective would be to have X number of dollars at a certain time point in your life.


If your goal is to have cash flow for your lifestyle and grow your assets .....then your objective is to have X number of dollars per year and have X number of dollars at then end of the time horizon


If a goal is to partially fund a child's college....then your objective is to save X number of dollars per year for that goal.


If your goal is to buy a house.....then your objective is to determine the down payment and have X number of dollars saved in the time frame.



Bottom Line: You can significantly increase your chances of investment success by starting with clear investment objectives