Read? Refining Wealth Formula
To add more conclusion to the definition of net worth and its component parts to compute net worth that most people already know.
Uncle8888 got the idea from Rich Dad. Poor Dad i.e. Assets and Cash Flow.
Wealth = Asset value + Cash flow!
Where Cash flow = Active Income + Investment Income
Asset value is NOT within our control and likely to be volatile when we are holding risky asset class like stocks which are marked to market value on daily basis.
It will affect our emotions. So it is for us to find our own ways and means to reduce our tension and pressure over future financial, economic and market cycles.
For ordinary employees with no great or special talents to climb corporate ladder to reach the top few levels, investing in risky asset class like stocks is potentially the single biggest way of building wealth over the long run.
Uncle8888 has personally witnessed several retired senior ex-colleagues in his office achieved their retirement goals. He realized and strongly believe that one way he will be like one of them but not the one at the high office.
Our senior colleagues who are currently in the same office with us is mostly likely to be our Future Me when we are unable to climb up in the corporate ladder.
Asset Value
Uncle8888's Asset Value is NOT within his control; but he still have to find his own way and mean to reduce tension and pressure to survive future financial, economic and market cycles.
He did survive the past cycles and strongly believe he will survive again!
Cash Flow (Investment Income)
It is a fact that Uncle8888 can still manage the level of expected investment income from risky asset class like stocks in form of expected dividend incomes and/or by part selling of stocks to realize cash flow (asset draw down). The way of deploying our limited War Chest is the tool for us to manage our own expected or desired level of investment income.
The good news is that our level of investment income from stocks is NOT directly affected by the volatility of the stock market but most likely to be determined by the way we manage our portfolio and deploy our limited war chest.
How many of us who are average or above average employees with kids have huge war chest?
2014 is ending soon and Uncle8888 is going to miss his yearly goal for the third time.
Year 1: - 2.9%
Year 2: - 1.5%
Year 3: - 2.7%
In fact, it is not difficult for him to meet his third year goal with his current level of War Chest but he has decided not. Probably, the mind of fisherman is at work.
Be patient!
Low tide. No big fish!
Hi CW,
ReplyDeleteHigh tide gonna come sooner or later. Hope you can huat and catch huge fish then. :)
Personally, I focus more on cash flow than asset value. A bigger tap rather than a tap made of gold? Asset value mean nothing really. Maybe only personal pride and perhaps envy/jealousy from others?
Gold tap can exchange for bigger tap to generate more cash flow. No?
DeleteUncle is a retiree, probably has more obligations to pay for your kid expenses more than anything.
ReplyDeleteGotta be extra careful with the warchest, which is what you did :)
CW8888 : wah! I think this is one of the longest post and less cryptic one too! ;-) especially like the last word of caution "low tide, no big fish"
ReplyDeleteSometime we still can see fisherman caught big fish during low tide. How come?
DeleteThe fisherman is very lucky but the big fish is very unlucky not to follow the tide back to deep water.