Assets VS. Cash Flow

Why do we go to work? Underneath the urge to be productive is the need to generate cash flow. A strong cash flow guarantees that assets can be accumulated over time. This most important dynamic is based on the time value of money and the power of compounding. Instead of investing in assets that depreciate over time we should be putting our investment into assets that generate cash flow.

You would benefit from a cash flow analysis of your portfolio. Review the performance and note how dividends and interest received over time, insulates the account from severe downward corrections.

Boats, cars, airplanes; hard goods, all depreciate in value over time and unless the utility and enjoyment they provide dictates retention; they are terrible investments. Houses also suck up huge amounts of cash flow and if future demand remains static, then they will not increase in value. This friction will only be resolved if
mortgage funds become available again and based on the recent news surrounding our financial intermediaries, it will be a number of years, not months, before we get back to the historic norm of home values keeping pace with inflation.

This brings us back to the importance of examining our investments in terms of the cash flow they generate.
We invest our capital and our labor in order to obtain a return, and that return will be enhanced as long as we remember “Cash Flow is KING.”

Arne Themmen is a Senior Vice President of Northern Trust Bank of Florida