Author Topic: I don't have enough cash flow on my assets!  (Read 3953 times)

Baylor3217

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I don't have enough cash flow on my assets!
« on: April 26, 2013, 04:21:50 PM »
Firstly I admit to being a 1%.  I've accrued a fair amount of "wealth" by my mid 30s that most people may never see in their entire lifetime (not the norm for this blog, but easily for the world and probably for most Americans). 

I have a few hundred thousand in my vanguard, a few hundred thousand in my 401k and a few hundred thousand in cash. 

I'm admittedly way too heavy in cash but am not looking to simply invest that money in the stock market or bonds.  I've talked on other threads about getting into real estate and have read heavily on the subject, but know it's never quite as easy as it seems (not that it seems easy). 

What are the best resources to evaluate how to generate cash flow?  I'm ultimately hoping to write an eBook on this based on my experiences (assuming they go well) as I haven't really found a great resource that gives me specific information.  Everything's too general!

Thoughts? 
« Last Edit: April 27, 2013, 11:18:33 AM by Baylor3217 »

matchewed

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Re: I don't have enough cash flow!
« Reply #1 on: April 26, 2013, 04:25:50 PM »
There are several methods to generate cash flow. Job, entrepreneurship, rental houses, rental properties for retail or other form of private sector businesses, just pure investment and rack in the dividends instead of reinvesting them.

I'm not sure what your question even means though. "What are the best resources to evaluate how to generate cash flow?" Um... your head, your ideas and hard work?

arebelspy

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Re: I don't have enough cash flow!
« Reply #2 on: April 26, 2013, 04:32:30 PM »
Dividend stocks.

But since you said you aren't looking to invest that in stocks or bonds, owning a profitable business.  Laundromat, maybe?

Otherwise private lender and holding paper is an option if you're looking for the real estate route (the one I'd probably take).
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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Baylor3217

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Re: I don't have enough cash flow!
« Reply #3 on: April 26, 2013, 05:32:57 PM »
"Start a business" is too vague of course

Vanguard total market will only yield about 2%. It a part of the tool kit but not enough to generate $25,000+ without a ton of capital.

PM yields 5% and may be an option.

I'm going to have to dig more into rentals.

$400k in PM yielding $15,000 per would be a nice option to consider.

arebelspy

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Re: I don't have enough cash flow!
« Reply #4 on: April 26, 2013, 05:48:00 PM »
Private money in real estate will yield 8-10%, hard money more like 15-18%.  But as with everything, the return will vary based on the risk and amount of work. To get the latter yields you need lots of knowledge, will have to do some work finding qualified borrowers (and then do due diligence on the properties), and will have to take on some risk.

Also I didn't say start a business.  I said own one.  :)

Why take the longer path when you have a shortcut (lots of idle cash)?
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Joet

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Re: I don't have enough cash flow!
« Reply #5 on: April 26, 2013, 06:05:34 PM »
IMO there's no magic in dividend stocks, I presume you're talking at/about/over ~1M or so

lets say you have 300k in your 401k, and 700k in taxable, [maybe half of that in cash]
I'm picking a 70/30 portfolio allocation between equities and bonds/cash. Only you know what is appropriate for your need, desire, and ability to take risk.

Since this 401k stuff you cant touch you pretty much are screwed from a cashflow perspective. But you can optimize your taxable structure.

I propose a modest/risk-averse portfolio of:
6 months spending in cash/MM
6 months spending in 3-6 months rolling CDs
every 6 months you take 6 months of spending out of your taxable portfolio, hopefully this is around 4% SWR or less all in, or you probably have to work [you probably already do]
Beyond that, in the 401k place those things that tend to kick-off dividends a lot. Such as REITs and bonds. In taxable I want you in foreign indexes and total US indexes. You'll have tax loss harvesting options here which could minimize losses, and no crazy un-neccessary tax drag from bonds here.

Say for 1M:

300k 401k
put the 401k like this:
300k BND [total US bond index]

700k taxable
100k 10% cash/MM/6-month CD
300k VTI [total US stock index]
200k VEU [total foreign stock index]
100K VNQ [REIT index]

I'm at a loss for where to put the REIT vs BND to best save taxes. It also probably depends on just how much you need to draw. But I am 100% against the idea that 'dow dividend angels' or whatever are somehow magical or better than investing in broad indexes.

Sell the 2%/3%/4%/n% every 6 months in the taxable portfolio to meet the cashflow requirement(s)

I'm sure dividend investing is fine. But let me also point out that the total US stock index pays out 2%, and offers a much lower risk profile. Same idea the total foreign index, and of course REIT.

You dont buy the chicken for its egg right :)
Perhaps only 6 months cash on hand is necessary and you can tweak the numbers from 50/30/10/10 to say 55/30/10/5
« Last Edit: April 26, 2013, 06:08:38 PM by Joet »

Baylor3217

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Re: I don't have enough cash flow!
« Reply #6 on: April 27, 2013, 11:18:12 AM »
Thanks for the well thought out responses.

If i did my calculations right with the bankrate.com cd laddering tool, a ladder with 100k would generate about $1,000 per year or so.  While helpful, that's not going to move the needle.  Doesn't mean I won't employ it along with other cashflow tools I'm already employing, but I'm looking for something a little more revolutionary.

I'm looking for cashflow other than what I sell my time for in my job, money market or cd laddering to generate thousands of dollars of cash flow.  I need about $25,000 to cover my expenses and be reasonably comfortable.  Sure I could do less or more.  My long term goal is to get to $40,000 of cash flow generated from investments without me having to work a single hour. 

I'm looking for more security than the stock market.  I believe there will likely be a fair amount of pain there over the next 4 years and am starting to take defensive postures to ensure I protect my capital with minimal opportunity cost.

Real estate seems to be one of the only ways to facilitate this type of cash flow based on the amount of stache I have accumulated. 

My idea of high dividend stocks seems to be the second best option but you want to be diversified.  So, for example, you can generate $20,000 a year in dividends on $400,000 owning say PM with a 5% yield, you could easily lose half your capital in a market correction.  Clearly not diversified and as someone mentioned, you can get 1-1.25% worse dividends and more diversification elsewhere. 

At my current salary, savings rate and expense rate, it seems I'm not doing something right or investing in the right places.  My main options seem to be to continue to accumulate more wealth in the stock market and hope for 8% (give or take) RoR over the years and simply sell some of my taxable assets as I go.  To feel comfortable there, and to generate $40,000 a year for the rest of my hoped for life, I would need about another $1MM dollars in the market.  That would take about another decade if I don't factor in expected market appreciation.

Still searching for better options.

Joet

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Re: I don't have enough cash flow on my assets!
« Reply #7 on: April 27, 2013, 11:39:44 AM »
my humble opinion is that:

1) cashflow is looking at the wrong-end of the bull
2) as you've hinted in this last post, focus on ROI
3) as I mentioned earlier, build a portfolio to take 2-4% SWR from your portfolio for spending needs [we can call it cashflow]
4) apparently you dont need the 6-months-cash-on hand for cashflow. I thought this was structured as a cashflow problem as small businesses typically encounter. That being the case, put it back towards whatever AA you deem risk/reward appropriate
5) a 1MM networth puts you closer to the top 10% than 1%'er, unfortunately :)
eg: http://www.ritholtz.com/blog/2012/12/what-is-rich-in-america/

Quote
“The top 1% of U.S. households have a net worth above $6.8 million or at least $521,000 in income, according to data from the Federal Reserve and the Tax Policy Center in Washington. The cutoffs for the top 5% are $1.9 million in net worth, or $209,000 in income.”
Maybe you are a 1%'er, and I apologize :)

Hope you read this post in it's spirt: helpful. If you truly want a income stream, perhaps as mentioned earlier you should be looking at [another] business to start/purchase/franchise/etc.
Certainly being a landlord could solve this dilemma, among a million other things, which come with their own drawback. I'm only offering advice from the one topic I've looked into a lot: market indexing and SWR

Another Reader

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Re: I don't have enough cash flow on my assets!
« Reply #8 on: April 27, 2013, 11:49:23 AM »
Leveraged real estate can accomplish this, but you need to understand it before you invest.  It is extremely risky to invest blindly.  I suggest Arebelspy's reading list (maybe he can post a complete list and pin it, as everyone keeps asking), joining a local real estate investors association, and talking with everyone you know that owns or has owned rental property.


Baylor3217

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Re: I don't have enough cash flow on my assets!
« Reply #9 on: April 27, 2013, 01:51:01 PM »
I use the term 1% loosely.  I suppose there are many ways to measure it, but I'm generally in the category of earnings that the govt attacks for more taxes to cover profligate spending.  If we continue on this current trend of attacking the middle class, many will find they all the sudden are "rich" as our politicians move the needle on how they define them.  I don't say this to be political, but just to state facts and accept the way the wind is blowing.  lt all comes down to a simple math problem and how best prepare ones self.




my humble opinion is that:

1) cashflow is looking at the wrong-end of the bull
2) as you've hinted in this last post, focus on ROI
3) as I mentioned earlier, build a portfolio to take 2-4% SWR from your portfolio for spending needs [we can call it cashflow]
4) apparently you dont need the 6-months-cash-on hand for cashflow. I thought this was structured as a cashflow problem as small businesses typically encounter. That being the case, put it back towards whatever AA you deem risk/reward appropriate
5) a 1MM networth puts you closer to the top 10% than 1%'er, unfortunately :)
eg: http://www.ritholtz.com/blog/2012/12/what-is-rich-in-america/

Quote
“The top 1% of U.S. households have a net worth above $6.8 million or at least $521,000 in income, according to data from the Federal Reserve and the Tax Policy Center in Washington. The cutoffs for the top 5% are $1.9 million in net worth, or $209,000 in income.”
Maybe you are a 1%'er, and I apologize :)

Hope you read this post in it's spirt: helpful. If you truly want a income stream, perhaps as mentioned earlier you should be looking at [another] business to start/purchase/franchise/etc.
Certainly being a landlord could solve this dilemma, among a million other things, which come with their own drawback. I'm only offering advice from the one topic I've looked into a lot: market indexing and SWR