How do we make money through investing? 2 ways: obtaining appreciating and cash flowing assets. Which ones are important? BOTH! But do not get too hung up on one or the other.
Appreciation simply means that an asset (stocks, real estate, gold, bitcoin, etc…) increases in value over time with the goal of selling them off in the future for a profit.
Cash flow just means how much money a particular asset generates on a regular basis.
I am going to let you in on a little secret of the wealthy: they care more about cash flow than appreciation. Why? Because appreciation is just a magical number that means NOTHING until you sell the asset. Cash flow on the other hand means money in your pocket on a monthly basis. PASSIVE INCOME BABY! This cash actually means something. It is tangible and useable, not like an asset that is just holding “value.”
You need to understand the difference between appreciation and cash flow as it will guide your investment strategies.
Do you need any of your investment money in the next 10 years? If so, I would focus on CASH FLOWING investments such as dividend stocks, REITs (real estate investment trusts), rental real estate, passive businesses, and so forth. These will provide you a regular income.
If you do not need the money in your investments within the next 10 years (i.e. you do not plan on retiring for a decade), then you can focus on assets that appreciate such as general stocks, real estate you plan to sell that doesn’t cash flow well, gold, collectables, etc…
I have a diversified portfolio where I have a mixture of appreciating assets and cash flowing assets, but I focus more on cash flowing assets as I like multiple income streams and plan on retiring from healthcare within the next 5-10 years (except Elite NP, I will do this long term well into the future).
Regular monthly income = financial freedom. If you have regular and predictable cash coming in on a monthly basis, then you do not need to work. You can do whatever you want, whenever you want. This is “F.U.” income, so to speak.
I also have some appreciating assets such as collectables (mostly Indian artifacts and gold), real estate (not profitable cash flow wise, but will result in a big profit when I sell in 10-20 years), and various stocks/index funds (that I will sell off for a profit at some point).
So, ensure you have both asset classes in your portfolio. This will further increase your financial redundancy and security which will lead to your ultimate financial independence!