For most of us, the most significant negative cash flow asset in our portfolio is our residence. Yes, if you own your home, you may benefit from the long-term trend of rising real estate prices, and, you have the essential benefit of shelter. However, home ownership comes with a long list of expenses, including insurance, property taxes, utilities, maintenance and, in some cases, interest and homeowner association fees. All of these tend to increase, at least annually, and recently, at an accelerating rate.
For many Americans, particularly the elderly, this is becoming a crisis, as the costs associated with staying in their homes are rising faster than their declining purchasing power.
By contrast, an investment strategy that has focused on an appropriately managed portfolio, predominately consisting of stocks and bonds, can generate positive cash flow that should increase, over time, and, at least partially, offset any inflation driven decrease in purchasing power.
All comments and suggestions are welcome.
Walter J. Kirchberger CFA