Converting Net Worth into Cash Flow

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When it comes to early financial independence, we all realize that cash flow is the name of the game. However, the path from ZERO to HERO does not have to only traject along a linear path; after all, there are multiple ways to skin a cat.

Cash flow is absolutely essential, yes, but not critical until the day of reckoning — the day when you FINALLY decide to quit your day job and become fully dependent on passive income!

By becoming too fixated on cash flow in the early stages, it is possible for an investor to miss out on great investment opportunities in the pursuit of yield.

How do I know this? I’ve made that very mistake many times before in the past…

Early Mistakes

In the quest to early FI, we always want to feel like we are making strides forward and pushing in the right direction.

For instance, that first $100/month in passive income is a most liberating feeling. You might say to yourself:

All my hard work is paying off! I’m $100 closer to no longer needing my day job. $100 each and every month will take care of my cellphone bill and perhaps more!

This progress feels wonderful! I’ve gotta keep on marching forward!

Now don’t get me wrong, I don’t mean to dismiss a very noteworthy achievement. In fact, I’ve “been there and done that” so I know that very feeling all too well. And although baby steps are needed to get to early FI, the problem with the pure cash flow mentality is that it can become too narrowly focused.

In the pursuit of the next $100, $200, etc., an investor might fall into the trap of chasing yield… In my own journey, once I cleared the $200/month mark in passive income, I got more aggressive and wanted to attack $300/month. In the process, I made some stupid investment decisions, such as buying shares of Linn Energy (LNCO) because the dividend yield was pushing north of 5% at the time…

If I can get to $300 so quickly, why don’t I get more aggressive and aim for $400?

Lucky for me, I sold out of LNCO in early 2013… Otherwise, I would be in a world of hurt right now!

But sometimes lessons are not learned immediately, and it takes a few mistakes before we can see what strategies really work…

Early Mistakes II

In 2013, I was obsessed with cash flow… After I sold out of LNCO, I allocated even more funds towards downpayments into two rental properties out-of-state. Why did I make these moves? Because the paper cash flow looked tremendous and the projected returns were putting my local Bay Area numbers to shame…

Again, I had tunnel vision, and I was fixated on only ONE thing — high yielding passive income! I wanted to get to early FI ASAP and I thought that I needed some heavy hitting cash flow investments to take me there.

In retrospect, these turnkey investments sort-of provide the type of cash flow I was looking for (more details in a future post!), but I’ve learned a few lessons along the way:

1) When you chase high yield (I don’t care if it’s with stocks, real estate, etc.), you will NEVER be buying up assets that have strong appreciation potential. In other words, your assets won’t become increasingly valuable over time and you will be effectively limiting your future exit strategy options.

2) High yield most often implies a low-income growth rate. Sure, you’ll generate higher cash flow returns on Day 1… but if it’s really indefinite early FI that you are after, believe me, it’s not Day 1 cash flow that matters! You’ll care much more about the cash flow generated in Year 10, Year 20, etc…

The Case for Net Worth

Net Worth is a very underrated barometer of success for many who are on the journey to early FI. In fact, most folks who are starting out today are only focused on cash flow.

I was no different myself when I first started out…

But I’ve learned that true progress towards early FI should be measured with respect to Net Worth, not Cash Flow.

In 2012, I purchased my first rental property for $315,000. Since that time, the property has only continued to appreciate, and today it is worth about $500,000.

In 2013, I purchased my second rental property for $290,000. Today, it could probably sell in the open market for about $520,000.

In 2014, I partnered into my first two side hustle deals. The first side hustle property was purchased for $490,000. Now, it is worth about $600,000. The second side hustle property was purchased for $521,000. Fair market value is about $620,000.

I don’t believe that it is any coincidence that my most valuable properties are also my best performing cash flow investments as well…

What I’ve learned over the past few years is this — there’s a reason assets become more valuable over time! People will always pay a premium for high quality. Paper gains aside, with my Class A properties, I get the following attributes that I cannot claim to be true for any of my out-of-state rentals:

  • Wonderful tenants who pay on time each and every month.
  • Low maintenance and even lower turnover tenants.
  • Extremely strong demand from renters.
  • Even stronger demand from prospective homebuyers (easy exit strategy!).
  • Robust price appreciation.
  • Strong rent appreciation.
  • Peace of mind.

The list goes on and on…

Ironically enough, my rationale for purchasing out-of-state rentals was because I wanted to achieve some higher cash flow. As it turns out, instead, in a span of 2-3 years, my Net Worth properties have completely outperformed my Cash Flow properties as it pertains to CASH FLOW!

An Example

Let’s use a real example to illustrate the importance of targeting Net Worth assets.

With Rental Property #4, I purchased it because paper Cash Flow indicated a 15%+ return on investment! Here’s what market rent looks like through the years:

Year 1 (2013): $1,075/month
Year 2 (2014): $1,075/month
Year 3 (2015): $995/month

That’s right, I’ve had to DECREASE rent this year in hopes of landing a new tenant… So much for hitting that 15% cash flow target…

In contrast, here’s what Rental Property #2’s market rent looks like:

Year 1 (2013): $2,150/month
Year 2 (2014): $2,400/month
Year 3 (2015): $2,800/month

At the time of purchase, Rental Property #2 showed me cash flow returns of less than 8%! When I purchased my property in Indianapolis, I mistakenly thought that I would be doubling my cash flow relative to my Bay Area properties!

But as is often the case, reality deviates greatly from paper returns. In comparison, however, the Class A property in the Bay Area has witnessed rent appreciation of over 30% in a span of only 3 years! Although I definitely do not expect such an outrageous trend to continue, the evidence is none-the-less clear-cut: the Net Worth property is already outperforming the Cash Flow property by leaps and bounds… in the Cash Flow department.

And we are only 2 years into my original thought experiment

When you factor in the price appreciation, it’s quite evident which investment has been the vastly superior one so far…

What About Stocks?

The above example looked at real estate, but I think the same ideas can very much apply to income investing with stocks as well.

Not too long ago, I made a purchase to acquire shares of Emerson Electric (EMR), as I worked towards rebuilding back up my dividend growth portfolio. EMR is a good example of chasing Day 1 yield… The company offers a very compelling dividend yield of ~3.7%, has a wonderful track record of providing consistent income, and the share price looks “affordable” using standard valuation metrics.

Now don’t get me wrong, I’m not saying EMR is a bad investment (or trying to knock the company); it’s just not much different from a typical Cash Flow type of property. You can utilize an investment such as EMR to help get you to early FI, but it most definitely won’t get you there quickly (not unless you plan on contributing a ton of capital along the way!).

I wouldn’t go as far as to compare EMR to my very own Midwest Cash Flow properties, though, as EMR is definitely a higher quality type of company with a much more reliable history of generating passive income than my out-of-state rentals. A direct comparison would be like comparing apples to oranges… Nonetheless, the growth potential of both types of investments are similar — there is none.

EMR is not a growth stock. Revenue is static. Earnings growth is anemic. And the share price reflects all of that. Yes, the 5-year dividend growth rate of 5.5% is very solid, but that just implies the following:

This type of investment is best suited for someone who has already (or just) reached early FI… It’s not as beneficial an investment for someone looking to get to early FI.

The same logic applies to companies such as: Coca-Cola (KO), Procter and Gamble (PG), McDonald’s (MCD), etc.

Low growth translates into dismal share price appreciation. It’s the “slow and steady” approach to getting to early FI. Again, there’s absolutely nothing wrong with going this route, but as an investor, just please don’t be deluded into thinking that you can get to early FI quickly by utilizing these types of investments.

Yesterday’s dividend superstars are highly revered in the dividend growth community because of their past performance and overall reliability. I get that. But if you are someone young and looking to get to early FI sometime in the near future (like say age 30), what you really need are GROWTH investments to catapult you there. This doesn’t mean that you have to invest in any risky hyper-growth stocks, but you should be mainly focused on acquiring shares of future dividend rockstars, instead!

If EMR, KO, PG, MCD, etc. are discounted, then sure pick up a few shares… When they inevitably rise again, though, I would elect to sell high (make a quick buck) and swap the proceeds into tomorrow’s Aristocrats (e.g. Starbucks (SBUX), Apple (AAPL), Disney (DIS), etc. ).

Companies such as Google (GOOG) and Chipotle (CMG) don’t yet pay a dividend today… But it isn’t tough to imagine a future in which they do, is it?

You get ahead by planning ahead. If you don’t need the passive income immediately today, why not focus more on future income? 5, 10, 15, 20 years from now, it’s very likely that any future Dividend Aristocrats will provide much stronger passive income (and passive income growth) than today’s companies. So, by the time you actually need the Cash Flow, it will be available to you in abundance. Further, you’ll probably pick up a ton more appreciation (Net Worth) as well… And Net Worth can always be converted into Cash Flow, but not the other way around!

The Forest and the Trees

If you can’t learn to see the forest for the trees, you will make the journey to early FI that much more difficult for yourself.

All too often, an investor who is seeking early FI will start their journey off by immediately jumping into the cash flow fray in search of yield. In the process, that same investor will forsake higher quality investments that offer far more future growth prospects for an investment that promises nothing more than a higher payout today…

I’ve made that very mistake many times before in the past…

Don’t fixate too much on cash flow today. A 6% yield does you no good if the company you are investing in takes a 30% haircut and has to suspend their dividend entirely. It will takes you many years to recoup those losses… which could indefinitely delay your early FI progress! On the other hand, realizing 200%+ in capital gains will help accelerate your progress up the mountain in no time…

So, if you aren’t planning on retiring today, don’t settle for ZERO growth and high Day 1 yield alone! It’s a trap… If your time horizon is 5, 10, 15, or 20 years out into the future, what you really need are investments that will shine and outperform for the next 5, 10, 15, or 20 years…

In my own journey, it was ironic for me to discover that my best Cash Flow investments turned out to come via the form of my strong appreciating Net Worth investments! This was a surprise to me because when I first started off buying Cash Flow investments, I was too focused on Day 1 paper gains and mistakenly thought that those numbers would always hold true (and improve over time)… But stagnant growth is stagnant growth… and high-yielding, non-appreciating assets will offer that to you in spades!

Stagnant growth can also introduce more risks to your overall gameplan; you’ll definitely need to over-budget your Cash Flow targets to insure you have enough post-FI!

I’ve since learned that over time the Net Worth investments will STILL come out ahead in the Cash Flow department, even if the starting Day 1 yield initially leaves a lot to be desired…

Growth is key.

You’ve got to always remember to take a step back and observe the total picture; it isn’t always crystal clear when observing through today’s lens.

Net Worth = Cash Flow

The journey to early FI is all about Cash Flow, right? If we don’t have sufficient Cash Flow, we can’t declare early financial freedom, right?


Net Worth = Cash Flow.

Because Net Worth can be converted into Cash Flow. Acquire the right (GROWTH!) investments. Watch them thrive. And then decide what to do…

If the Net Worth assets start to generate sufficient income after a few years due to robust passive income appreciation (e.g. Rental Property #2), then you can continue to hold and reap the benefits… In a way, they’ve now morphed into a hybrid Cash Flow investment but will most likely still retain their Net Worth appreciating component into the future. A truly wonderful problem for any investor to have!

However, if you’re right on the cusp of freedom and require a stronger yield to support your lifestyle post-FI, it is only at this time that it becomes appropriate to sacrifice growth for yield.

In the latter case, you can then sell off your Net Worth assets and convert the proceeds into acquiring higher-yielding, but lower growth investments. Finally, we’ve come full circle and arrived back where we started from! Like I mentioned before, I don’t think that investments such as EMR, PG, MCD, etc. are bad investments… I just think that they are better suited for the person who is actually in retirement as opposed to someone who is working on getting there.

Once retired, reliability and stability of the income stream become absolutely paramount to the early FI investor, so at this time, I would say go ahead and make the switch into the renowned Dividend Aristocrats.

But if you aren’t there yet, well, the only real shortcut to early FI is to focus on acquiring Net Worth investments which will appreciate substantially into the future.


Bottom line — It’s a lot easier to convert a high Net Worth (e.g. $2MM) into quality income producing assets at a later time than it is to slowly and methodically build up a passive income stream comprised of low-growth entities, branch by branch.

Then, you can take your $2MM, wait for a sale (e.g. KMI = 6.0% yield today; XOM = 3.7% yield today; CVX = 5.0% yield today; T = 5.4% yield today) and then strike while the iron is hot.

You’ve now got your reliable stream of passive income secured!

On the journey to early FI, don’t underestimate the importance of Net Worth — It provides you the purchasing power necessary to obtain Cash Flow whenever you want!

It took me a few years to learn this very important lesson, but at last, I’ve arrived to that conclusion! And I don’t see myself ever deviating from this approach again…


Happy Investing!

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Fervent Finance

Great post! Right now I’m concentrating on wealth accumulation through growth and my route is low-cost index funds. Maybe in 10 years when I transition out of a traditional 9-5 job and want more income (real estate, dividends, etc.) then I can make that transition then.

Alexander @ CashFlowDiaries

You make solid points in regards to the Class A properties. It’s just difficult to find cash flowing Class A properties. I would hate to buy a class A property with no cash flow and just the speculation that it will appreciate over time. Just too risky for me. Im sure it can be done in many markets though.

But I definitely agree that your net worth will look much better in the long run with those types of assets. Lucky for me I was able to acquire one Class A asset here in Austin and the other one is a “B” which is still good but the days of finding those types of deals are over here. At least for now. The rest of mine are Class Cs. Those however are performing great right now so I’ll keep my fingers crossed.

Midwestern Landlord
Midwestern Landlord

Fi Fighter,
Interesting and thought provoking post. I agree with you, buying high quality, well located, class A properties for the long haul is a great strategy and has certainly worked out well for you. I have the following thoughts to offer:

1) Timing plays a very important role in real estate investing versus hitting a homerun, hitting a single, or striking out. Bay area real estate went down in value approximately 27% from 2008 to 2011. From 2012 to mid 2015 it has increased around 60% – 65%. So if you bought in 2008 and sold in 2011, it did not work out real well. The market right now in the Bay area is red hot, so it does not surprise me that your investments that were made at the bottom of the market are working wonderfully. But what about the investor now in August, 2015? At what point do the escalating prices form a bubble? At what point do we have concerns about sustainability? You know the market much better than I do and it is certainly possible that the Bay area real estate market has a ways to go yet. But just like the stock market that we have talked about, at some point valuations just become too high from a risk reward standpoint. So what I am saying is that a fantastic investment for you in the Bay area in 2012 might not be a fantastic investment for someone else in say 2016 or 2017 or even now? And it all boiled down to market timing.

2) “And Net Worth can always be converted into Cash Flow, but not the other way around!”.

I definitely agree that high net worth can be transformed into more cash flow if that net worth is not producing a very good return. But a couple of things need to be kept in mind if converting real estate equity to dividend income. 1) Real estate has relatively high transaction cost so this will take a slice of the equity away. 2) If one has accumulated a lot of real estate equity, uncle sam will want a piece of it after the sale (unless personal residence). This does not hold true if one keeps the property and pulls out money tax free (like you did). However, one will not get at the remaining 20-25% equity in this case. Also, while I understand someone converting net worth into higher cash flow, I don’t understand the other way around. If one already has sufficient monthly cash flow, there is no need to try and convert that into a higher net worth.

3) “But if you aren’t there yet, well, the only real shortcut to early FI is to focus on acquiring Net Worth investments which will appreciate substantially into the future”.

Relative to real estate investing, I think this really depends on what market you are in. If you are in the Bay area market, appreciation is your ticket, assuming you get on the bus before prices get so high things don’t make any sense anymore. If you are in my market (midwest area), appreciation is not really the game plan; whatever you get is a fringe benefit. It is about getting enough high quality investments in place that provide enough cash flow to live on. Even without great appreciation growth, on average, rents should keep up with inflation. So if you have margin on day one, you will continue to have margin for as long as you keep the property. Particularly if you are fortunate enough to have a lot of low interest 30 year fixed mortgages in place.

No Nonsense Landlord

Great points. Net worth is a precursor to some cash flow, but with cash flow your net worth can increase too. Sort if the chicken vs. the egg. One thing for sure, with higher cash flow yield, you get higher risk.

With the RE market down in 2008-2012+, it was a great tome to invest in rentals. Maybe the best in the next 20 years. Investors received both cash flow and appreciation.

With my properties being worth ~50% more than I paid, plus an income that is well over 6-figures, it has been a nice ride.

Excellent post, one that should keep dividend income companies in perspective.

One thing that was slightly overlooked in my opinion is the risk reward ratio and diversification. Whilst it is impossible to cover all aspects, these are inherently linked with dividend stocks.

1. Risk.
Growth stocks are more risky, thus there should be a higher diversification. ETFs are great at this. (Low Cost one). The risk in growth stocks is higher than dividend income is because of the “economic moat” which well established companies have, this creates less risk.

Thus your risk profile, can shift you to dividend stocks from an early start to your FI inheritance. Say you inherited 100,000 , your annual income is 40,000 US dollars of which you manage to save 5,000 us dollars. Replacing that 100k if you loose is going to take a lot of time.

Going into dividend stocks, or having a high allocation rate makes sense. In this case capital preservation is key, rather than growth. Growth comes with more risk than well established companies.

george puck

I generally agree with your point. That the focus shouldnt be on cash flow from day one.

Early on when you are just getting started, Total appreciation is key. Buying high quality properties that will go up in price will also most likely have better than expected rent increases.

Perhaps a new property shows marginal cash flow early on, but compounding price appreciation along with yearly rent increases gives you a total return that as you correctly point out can often lead to the much better investment.

The other thing that makes real estate so great is that the cash flow if purchased correctly services the mortgage until you are near retirement. Then boom the mortgage is paid off and the property turns into a pure cash flow machine.

With real estate I dont think you have to choose an either or scenario, which is the point you are making. Buy properties where you think the price AND rents will go up.

As far as stocks go, I agree that chasing yield for the sake of yield is wrong. I think when you are young and trying to achieve FI, total appreciation is most important. With a heavier emphasis on growth stocks.

As you said a company like Disney likely will end up with a huge dividend if you hold it for 30 years. And I wouldnt be surprised if Chipolte ended up as a dividend aristocratic in 40 years.

I will say I think diversification is more important with stocks than it is with real estate. Money managers move from sector to sector. If you only have high dividend yielding stocks, you are at risk of losing in a rising interest rate environment. If the economy is picking up, money managers will overweight in dividend paying cyclical stocks. There are times growth, or international or healthcare etc are out of favor. IMO its best to have a diversified portfolio and then near retirement turn it into a mostly high dividend portfolio.

Its nearly impossible to know where you are in a cycle, and having some money available allows you to pick up additional stocks when they go on sale. KMI, Disney, Apple, the oils have all gone on sale of late. But imo all of those companies are well run, and one has to think over the course of time you will do well buying a stock that is broken of a company that is working.

Like you, I also like KMI for the yield, but mostly because I like the business model, there is a huge moat around it to keep out new competitors, its in an secular growth industry. And I like the idea that today we are getting 6% and in 5 years according to the companies stated goals, we should be getting just about 10%/yr in dividends. (plus any capital appreciation) IMO that is a fantastic TOTAL return for what I think is relatively low risk.

george puck

One thing I like about real estate is that there are an almost an infinite number of ways to play the game.

Buy the dips, fix and flip, single family, duplex, wholesale, foreclosures etc etc.

I think perhaps the low hanging fruit is gone. Here in Dallas we bought in the summer of 2013, I think we may have a property that has gone up 20-25% in value, plus the rents have gone up nearly 40%/month since we purchased.

Our early strategy was to buy a really solid property in an up and coming neighborhood that is walking distance from trendy restaurants/bars etc. And we hit it in spades.

Our next purchase is a house we live in now that we intend on turning into a rental in another trendy neighborhood.

I think in the future we will have to look a little harder for deals, maybe buy in all cash, or get involved with a foreclosure or find someone who is wholesaling a property that we can fix up.

I think deals are still there, you just have to look a little harder. The days of having 500-$1,000 from a rental ready property are gone.


I can’t comment on the real estate point, but I disagree with you on equities.

You say: “when you chase high yield (I don’t care if it’s with stocks, real estate, etc.), you will NEVER be buying up assets that have strong appreciation potential.”

High yield, by definition, implies a low price relative to cash flow… So what you are buying IS assets that have a strong appreciation potential. There were plenty of high yielding equities in 2009 that have appreciated tremendously in the last 6 years.

In addition, studies show that these boring dividend aristocrats return more over the long run than the broader market on a total return basis.

Sure, you have done very well over the last few years, predominantly through your bay area real estate…but what do you suggest beginners on the road to FI do with our hard earned money now? Try to spot the next speculative real estate bubble? Invest in tech stocks? This seems to say the opposite of your other recent posts espousing safety and conservatism in this seemingly frothy environment.

I think I will stick to the advice of Buffett and the value investors who have seen it all and still manage to significantly outperform the market.

george puck

I actually disagree with the statement that the definition of high yield implies high cash flow.

A company like Berkshire Hathaway has no yield but has a huge cash flow

Google and Apple have huge cash flows, but relatively modest dividends.

Typically high yields are found in slower growing companies that are throwing off cash. It is possible to have a very successful total return if the dividend is safe and the the yield high enough.

Faster growing companies are usually bid up in price and rarely carry large dividends, with those companies you end up making money on the dividend because the company grows it over time.


You can’t really disagree with the definition…that’s the definition!

Berkshire Hathaway’s yield is 0%…as they don’t pay a dividend. Yes, the COMPANY generates cash. But, as an INVESTOR, they generate 0 cash flow per share.

I disagree that higher yields are found in slower growth companies. If we look at total returns over time for dividend aristocrats vs. the overall market, the dividend aristocrats outperform.

But please, if you guys can forecast the next 10 bagger please let me know! It’s a bit more difficult than saying: “Google seems pretty big right now. Same with Chipotle – I go there all the time! These guys will be huge in the future!”


i would agree with much the last poster Jon said. There is this part where you talk about going for growth instead of high yield since it is low growth. to a certain extend that is stereotyping stocks into these two buckets.

there are more to this. you cited dividend aristocrats and they do provide growth, yet their yields can still be decent.

the factor that rules them all isnt growth, or yield. its value.

when you are a competent valuer, and purchase a dividend stock that does not require much capex and can pay a decent div, yet it can grow at 10% for the next 10 years, you got something decent. incidentally that sounds like MCD before their recent problems.

if they have bought some of those ‘great’ companies that provide tremendous growth now, and in 5 years time they were exposed with known unknowns that due to our deficiency in prospecting skills, we failed to see, we are going to lose money.

the main reason you can reach a high networth is mainly attributed to leverage, which you couldn’t with equities. a close alternative to property leverage, is by purchasing high yield bonds on leverage, or buying a medalion taxi on leverage. if things work out well for you, because you caught everything at the right time, without any of the bad thing happening then kudos to you.

but i can see the risk of a person going for growth, trying to build an accmulative networth by going for supposed growth companies and buying bay area properties at high prices, and saw the networth cut by 30%.

in general i do agree with not overly focus on cash flow at accumulation phase. the dividend is important, only because for certain companies, it lets you, the shareholder know that you are compensated for not being an owner operator, whether the owner could devalue your investments.

i also agree with that your assets, if liquid is fungible.

but at the end of the day, it is still your ability to execute value purchase.

you could have seen the light and liquidate your whole property portfolio and pay off the debt and put the 1 mil net worth in the dividend stocks that you mentioned. when a 30% correction comes along, your theoretical net worth is cut, and hopefully the dividends are not cut.

the lesson for me here to self, is that if i am successful, i have to be clear that what i achieve is highly likely due to luck like what howard marks say, that i was caught in a midst of the right situation. it might be better to learn the lesson after i do well in a more psychological painful investing period.


At what point might you consider locking in your gains on rental 1 and/or 2?

On the BEST month, the 2 properties seem to cash flow around $800 together.

If only sold property #2 and invested the net proceeds into a index (broad/real estate or otherwise), a 4% SWR would cash flow almost as much as both properties do on their best months with zero work.

You would lock in some real estate gains at current highs and diversify, as you have plenty into San Francisco real estate.


[…] Converting Net Worth into Cash Flow […]

Simple Is The New Green

I’ve had some good luck with rental properties. We bought a couple of properties for $35k each. They are not class C, but not quite class A. I would personally live there as they are safe and clean and remodeled. We cash flow around $5,400 per year on each property. If you think about 3% withdrawal rate recommended for early retirees to make sure their accounts last in perpetuity, then that is equivalent to $180k in a retirement fund. We bought these “in cash” with a line of credit (read zero down: OPM) and had the tenant pay them down. Our ROI is through the roof, we didn’t have to actually pay for them and rents appreciate with inflation. I never consider these as ‘net worth’, even though they have tripled in price, because I never plan to sell. It is purely cash flow for us.


“Net Worth = Cash Flow” Good insight here! I think in part you’re making an argument for keeping a long term view. Investment A may have better cash flow short term than Investment B, but when compared over their lifecycles, cumulative cash flow from Investment B may shine. Is this it? And should one account for the time value of money in such analyses, discounting projected cash flows, would you say?


Excellent article


Solid points on NW vs CF, I think cash flow just mirrors closely what we’re used to, income from a job. It’s also psychologically hard to not have CF and see your NW tick downward.

Buying individual stocks on discount because they represent a high yield is a solid move, one that’s possible because we had the great recession a few years back, but I’d argue that it’s probably better to stick with a dividend fund if you want decent performance without the volatility of single, or small basket of, stocks. EMR is a great dividend stock, been raising it every year since the 50s; but is down almost 19% on the year. 19% in one year, in the long run, won’t kill you but it’ll give those nearing FI’s heart a flutter. 🙂


Its funny, but I have followed a similar path to your. Bought in Denver in 2008-2011. The market got crazy, so we started looking out of state. The out of state properties have better numbers on paper, but have had greater turnover, greater headaches, and have actually depreciated in some cases for me.

I think some people fail to look at there long term costs and the ability for higher rents to offset those costs. A 20 square roof in St Louis will cost nearly the same as a 20 square roof in Denver. My St. Louis property gets 775 in rent while my Denver property gets 1500 in rent. Even if the property is fully paid off in St. Louis, I still will not recoup my costs for a long time. In simpler terms, maintenance costs are a higher percentage of rent when the rent is low.

Since we agree, whats the best step to buy higher cost properties that are in the better markets when bidding wars abound?

DP @ Someday Extraordinary

Hi FI Fighter,

I just came across your blog and am intrigued. Not a lot of early retirement/financial independence writers seem to discuss stocks in so much detail. You may have covered it already in another post that I just haven’t gotten to yet, but what are your thoughts on the latest market? I see you are interested in some of the energy and oil stocks. I think there are some fantastic buys out there at the bottom of this cycle that will come storming back in the coming years. The hard part is stomaching holding some of these companies while oil and commodities keep tanking. If you have the guts, you can lock in some great yielding stocks that have potential to appreciate significantly.

I’m starting to write up a series on investing techniques on my page – the latest as a discussion on book value. Do you have a strategy that you typically employ?

Anyway, good read!



[…] by FI Fighter – This is really the key for anyone that’s trying to retire. If you don’t feel to […]


[…] by FI Fighter – This is really the key for anyone that’s trying to retire. If you don’t feel to comfortable […]


[…] you know, you can convert net worth into cash flow later, […]


[…] That, and as I believed then (and still do today), in the end, it’s total returns that matter most… In other words, yes, cash flow/passive income is the name of the game to get to early FI, but profits are profits, and net worth can indeed be converted into cash flow/passive income later on! […]


[…] But to get to early FI, total returns are far, far, far, more important… and you can ALWAYS convert net worth into cash flow later… but good luck trying to take “slow dripping” cash flow investments and trying […]


[…] everyone else and actually get to early FI, focus on accelerating and compounding your net worth. Net worth can ALWAYS be converted to cash flow later, but not the other way […]