When it comes to investing, should we look at cash flow and appreciation differently? If we have an asset like gold or artwork that we expect to increase in value more than a productive asset (like stocks), would it be wrong to choose the non-productive one? Cash flow makes sense because it goes straight into my bank account without having to sell anything, and even if the asset loses value, I’ll still have cash flow. But with non-productive assets, there’s no cash flow until I sell it. Wondering what others think about this.
*This is assuming that the productive asset, like stocks, also brings in cash flow (dividends).
Do you think the appreciation of the non-productive asset outweighs the combined appreciation and yield (like dividends) of the productive asset, considering taxes?
Over what time frame do you believe the non-productive asset will appreciate more, and why?
With non-cash flow assets, you’ll probably pay a lower tax rate (15% or 0%) when selling, based on your capital gains.
With income-generating assets, the income is taxed as regular income, which could be higher than 15%, depending on how much income you get.
Non-income assets might require you to sell them to get money back. If the market is down or the asset is not easy to sell, it could take a while. That’s why having cash available for emergencies is important.
Income-producing assets need you to figure out how to invest the income. If you’re reinvesting, it can be tricky with market conditions changing. Sometimes you make a lot of small investments instead of one big one. With things like Treasury notes, you might need to keep track of lots of smaller purchases over time. With stocks, you can just reinvest the dividends easily. Non-income assets require you to do nothing but wait.
But overall, it’s about comparing the returns of both investments to see which one is better.
If we’re talking about real estate or dividend stocks, holding the asset generates cash flow. To see appreciation, you’d need to sell or refinance the asset. For real estate, I prefer cash flow and getting value from appreciation through collateralization.
Shawn said:
Yes, appreciation is partly based on cash flow. Cash flow depends on how well you manage revenue and expenses. One is real, and the other is still just potential.
Yes, appreciation is partly based on cash flow. Cash flow depends on how well you manage revenue and expenses. One is real, and the other is still just potential.
Shawn said: @Page
Let me clarify. Appreciation is influenced by cash flow, but it also depends on other factors like supply and demand in the market.
Right, I understand your point now. So how do you weigh guaranteed, realized gains (like cash flow) versus an asset that appreciates but only gives unrealized gains until you sell it?
@Page
It really depends on your preference. Do you want a clear one-time payout or would you rather manage an asset for regular income while also capturing appreciation when you decide to sell?
Shawn said: @Page
It really depends on your preference. Do you want a clear one-time payout or would you rather manage an asset for regular income while also capturing appreciation when you decide to sell?
I think cash flow is more predictable and can be used for daily expenses or reinvestment. Appreciation, though, is more like a gamble. You can’t count on it.
Noor said:
I think cash flow is more predictable and can be used for daily expenses or reinvestment. Appreciation, though, is more like a gamble. You can’t count on it.
Thanks, that’s exactly the answer I was looking for. Your point makes sense.
Rohan said:
This is all really confusing. Just focus on your overall after-tax return.
Are you asking about overall appreciation versus realized cash flow?
If you think a piece of art will appreciate by 50% next year and a property will appreciate 30% (including rental income), is it logical to buy the property?