Is he really a clever dude?

[Disclaimer: Artist's rendering of AJC ... any resemblance to other bloggers living or dead is purely coincidental]

Have you noticed that I don’t have a category for debt on this blog?

[AJC: you can click on any of the keyword/categories in the orange header-banner above to see a list of blog posts focusing on that subject]

It’s not because we don’t talk about debt, as we clearly do …

…. it’s because, to me, creating or paying off debt is just the same as investing (after adjusting for tax: a dollar saved in interest, is the same as a dollar earned in interest or investment income, right?).

That’s why I was genuinely interested in finding out what was going through fellow-blogger Clever Dude’s mind when he loudly proclaimed:

We’re Free of Consumer Debt!!!!!!

As of today, we have paid off all $113,000 of our student loans, auto loans and credit card debt.

We are debt free!!!

My fellow blogger is right to be proud of his achievement … but, does that make it the right investment choice?

Check it out:

He paid off $113k … now, this is no small achievement, some people don’t even save that in their entire lifetime! Still I couldn’t resist asking Clever Dude for some details:

The rate on the student loans was 6.25%. The 2nd mortgage is 7.875%. First was 5.25%.

I chose to pay off the student loan because it was more manageable and I could get it off the books faster than the 2nd mortgage. Mathematically, the 2nd mortgage makes more sense until you factor in the tax deduction which brings them down to about equal.

I also wanted to know a little about his current net worth (after the mammoth debt-payoff feat) – nosey, aren’t I?! Anyhow, Clever Dude was happy to share:

Don’t mind the math as I rounded:

Cash: 17%
Investments: 37%
Home Equity: 6%
Autos: 17%
Personal Property: 12% (if I could sell it all right now)
Whole Life Insurance: 5% (yep, I got it, it’s expensive, but I’m not giving it up!)

So, Clever Dude has ‘invested’:

-> $113k in loans returning (by avoiding having to pay) around 6.25% after tax

-> 17% of his net worth in cash returning (I’m guessing here) 2%?

-> 6% of his net worth in his home returning some unknowable amount in future (potential) capital gains

-> 5% of his net worth in insurance ‘investments’ of dubious value after (often) exorbitant fees

-> 29% in (presumably) depreciating ‘assets’ such as autos and personal property

Now that he is debt-free, what  will drive Clever Dude’s investment strategy from here on in? He says:

Investing and savings are next up in our planning. Honestly, we’ve spent so much time just thinking about debt, we haven’t spent much time on the future. Now is the time.

Now, I’m not here to pick holes in Clever Dude’s investment strategy as he had a strategy and moved mountains to achieve it – not to mention, that we know so little about Cleve Dude’s true financial situation that we are in no position to advise / criticize …

…. but, I do want to use this example to show why following a blind – and, in my mind totally arbitrary – investment goal such as “reducing debt” is not always the best idea:

Clever Dude has only 37% of his net worth in investments right now (OK, he is working on his Master’s Degree, so he has had other things on his mind) and has limited the bulk of his net worth’s returns to only 2% to 6% (or so) by almost-totally focusing on paying debt.

Why?

So, that he can start “investing and saving”!

Now, does that make sense to you?

A (post)Vacation Question – Part III

Now that we’re back from vacation I can retain my blogger’s right to semi-anonymity, yet risk little by answering Mike’s [and, some of our other readers'] question:  ”Which beach in Australia is this?”

Noosa in Queensland.

After discussing the real-estate ‘deals’ of Bill the shaved ice man, and Massimo the ice-cream man [AJC: did I mention him?], while buying – naturally – shaved ice and icecream, as one does when in Noosa on vacation, now that we were finally home and ready for a change of scenery …

… we discussed bank-financing of real-estate on our way back from buying ice-cream at the 7-Eleven store not far from our own home

The conversation went something like this:

Son: “Why has the bank invited you to their private corporate box at [a certain upcoming international sporting event]?”

Father: “Well I have a lot of money on deposit with them”

Son: “But, they have to pay you money [interest], aren’t their important customers the ones that they lend money to and who have to pay the bank money?”

Father: “Good point!”

So, I explained to my son that I am now both a borrower and a lender to my bank:

- As a lender, they pay me roughly 3% on the money that I have sitting in their bank,

- As a (recent) borrower, they charge me roughly 7% (interest + bank fees and charges) on the money that they lend me.

Son: “So, they only make 4% interest … is that enough for the bank to make money on?”

Father: “Don’t feel too sorry for the banks!”

As I explained to my son, the bank is like any other business buying a product for $3 (or, in the bank’s case, borrowing money for 3%) and selling that same product for $7 (or, in the bank’s case, lending money for 7%):

They are operating on (at least in this example) a 133% Gross Margin.

Most people DREAM of having a business that operates on 133% Gross Margin …

… of course, the banks have costs:

- They have to carry stock (i.e. pay interest on funds deposited) even if they don’t sell it (i.e. lend it) … unlike a ‘normal business’ the bank has these great treasury departments who simply put this ’spare money’ into the short-term money market and earn interest,

- They have the usual staff, office lease, and overhead expenses of any other business,

- They have the risk of fraud / credit default on the money that they lend out.

All of this is factored in to produce a Net Profit that is amongst the best of any type of business (GFC aside). This got my son thinking:

Son: ” So, why don’t you put your money in a safety deposit box and lend it out to other people instead of letting the bank make all the profit on your money?”

Well, as I explained, I actually do: I have a finance company of my own, and we look at our finances this way; the interest that we charge our clients is treated as ‘fees’ … we divide that Fee Income (very roughly) into three parts:

- 1/3 goes to pay the bank’s interest and fees on the money that we borrow from them to lend to our clients,

- 1/3 goes to pay our staff, rent, and overheads, leaving

- 1/3 which goes to our [AJC: my] profit.

This is strikingly similar to the ’standard’ restaurant formula:

- 1/3 goes to pay for the raw material [AJC: pun intended :P ],

- 1/3 goes to pay their staff, rent, and overheads, leaving

- 1/3 which goes to their profit … of course, that’s the theory but the reality for restaurants and many other businesses is vastly different (but, that’s a subject for another post).

So, why don’t I do what my son suggests for the bulk of my money?

Simple: I don’t have the ability to handle the credit / fraud risk!

But, the bank can because they have the people, the systems, and the sheer bulk of money out there which effectively spreads their risk (IF they have followed sound credit lending policies ….enter housing crash and GFC).

Later on this week, though, I will tell you how YOU can become the bank … without the risk.

Stay tuned!

How to invest 101?

This video is way too basic for my readers [AJC: if it isn't, please stop reading now! ] …

… BUT, it’s a great video to show to the children in your family.

Let me know what you think?

Do I need The Money Guy’s help? You tell me …

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A few days ago, in a discussion about the merits (or otherwise) of financial advisors, I made an admission:

I’m having a hard time finding advisors and mentors who can move me to Making Money 301 (protecting my wealth) …

If you read the article, you’ll begin the see why … in the meantime, Rick kindly offered a suggestion:

Yes! I suspect that there are few people that have $70 million of their own, and fewer still with a long track record of protecting it! You might have to settle for someone with a lot of experience managing other people’s money that has the right mindset to protect your wealth.

I’ve found that Brian Preston’s podcasts has given very solid MM301 advice: http://www.moneyguy.com/. If I had $7 million to protect I would ask him or someone like him.

But, WJ proffered the opposing view:

You gotta be kidding.

Asking Adrian who have made $7million himself to send his money to someone who have not made that much money from his supposed expertise?

The only way that advisor is getting rich is from the management fees he’s getting from those clients of his.

My philosophy is simple. If I want to get rich thru properties, I will want to look for someone who have done it thru properties. So, in order for me to trust the advice of the financial advisor, he must show me that he has already achieve financial independence thru investing(not thru giving advice). That is totally different.

I’m stuck!

Who is right? Should I take The Money Guy’s advice or not …

… to help you decide, here is the link to his web-site:

http://www.moneyguy.com/

Please show me the way by voting on the poll above and perhaps leaving a comment below …

Would you trust your money to this man?

Lots of people trusted this man with their money, but more on that later …

First, I want to tell you about The Finance Buff who wants to offer you personal finance advice … he also wants to know how much you’re prepared to pay, claiming that there’s an under-serviced market here for inexpensive, unbiased personal finance advice:

Usually an under-served market exists when there is a big gap between what customers are willing to pay and what it costs to produce what they want. I suspect that’s the case in the financial advice market.

[But,] I’m willing to help others with their personal finance questions. I don’t necessarily have to make much money from it (my full-time job covers my living expenses), but I do want to at least cover my cost of regulatory compliance and liability insurance.

With most things, you pay peanuts and you get monkeys …

… and, that may be the case here:

I am not a financial advisor. I do have personal opinions, sometimes strong, ignorant, or biased. Everything you read here on this blog is the author’s personal opinion, not financial advice. I am by no means an expert on anything. I don’t intend to mislead, but my facts, figures, and calculations can be incomplete, inaccurate or plain wrong.

Of course, that’s just his legal disclaimer … because, after reading the quality of The Finance Buff’s blog, that may not be the case at all … it could indeed be quality financial advice at a bargain price!

On the other hand, looking for a top-of-the-town advisor and paying the commensurate high price may not get you the kind of quality financial advice that you would expect, either.

Alberto Vilar [pictured above], 68, co-founder of Amerindo Investment Advisers, faces up to 20 years in jail after being found guilty on all 12 counts of fraud and money-laundering against him. Hailed as heroes by their clients, they made fortunes for themselves in management fees. [But,] their fortunes plummeted at the same time as the dot-com bubble burst. They were arrested in May 2005 after a client, heiress Lily Cates, claimed they had stolen $5 million from her.

Price [does not equal] Quality when it comes to personal financial advice.

For that reason, I don’t recommend that you put your money into the hands of any advisor; in fact, I recommend that you do not seek a personal financial advisor at all … rather, you should look for a personal financial mentor.

There is a difference:

ad⋅vis⋅er

–noun
1. one who gives advice.
2. Education. a teacher responsible for advising students on academic matters.
3. a fortuneteller.

men⋅tor

–noun
1. a wise and trusted counselor or teacher.
2. an influential senior sponsor or supporter.

Would you rather trust your financial future to the book-learned “fortuneteller” who will promise to give you a bucket-load of fish …

… or, would you rather trust it to yourself, with the support of the self-made “wise and trusted counselor” who will teach you to fish?

[ AJC: There is another difference: a true mentor won't ask you to pay for anything more than a lunch or two ]

Whether you are looking for an advisor, or a mentor, or you don’t care which because you think the difference is moot, after satisfying yourself of their integrity and character, here is what I would look for:

1. If I know my Number and Date, then I would look for a mentor who has made 10 times as much in about half the time, and

2. Doing exactly what it is that I need to do in order to achieve my required annual compound growth rate.

Choosing an advisor and/or mentor by asking these typical ‘financial advisor double-speak’ questions can’t do you any good; you see:

They can’t be aligned with the way you think … instead, they need to be aligned with the way you want to think.

I’m having a hard time finding advisors and mentors who can move me to Making Money 301 (protecting my wealth) … now do you see why?

7 miljoonaa 7 vuotta

… that’s just my way of saying hei [hello] to my Finnish readers!

It seems that I have a few because I’ve been tracing some backlinks to my blog and found this one: http://www.taloudellinenriippumattomuus.com/ which (thanks to Google translate) asks if I am one mg/ml of the investors?

Now, this is a very clever way [AJC: if you understand metric measures, such as 'milligrams' and 'milliliters'!] of challenging us to decide if we are the ‘one in a thousand’ investors who can actually make money trading in the stock market [AJC: presumably, this is a Finnish blog focusing on trading stocks?] … in fact, in this article the author is specifically discussing Day Traders; now, day trading is something that I have never attempted!

Probably for good reason …

The author cites a Taiwanese study that found that (after costs) only 0.16% (or 1.6 per thousand) of Day Traders actually made a profit!

So, why do the other 99.84% do it?

Well the author says (or quotes, I’m not sure which):

While day traders undoubtedly realize that other day traders lose money, stories of successful day traders may circulate in non-representative proportions, thus giving the impression that success is more frequent that it is. Heavy day traders, who earn gross profits but net losses, may not fully consider trading costs when assessing their own ability.

Now, this is very interesting because you could insert almost ANY speculative activity (e.g. flipping real-estate, investing in gold and futures, FOREX, options, stock trading, speculative business ventures, etc., etc.) in place of the words “Day Trader” and I think you will be able to draw the same conclusions:

1. The vast majority of speculators lose money,

2. Of those that do make money, most of those will realize that they, too, are actually operating at a loss if they take into account the true costs of their time, money, operating expenses, etc.,

3. However, the ‘losers’ keep chasing their losses because of the VERY FEW real success stories (and, the plenty of fake/scam/exaggerated ’success’ stories) that become too well publicized and glorified.

For our other Finnish readers, I should probably also acknowledge references to this blog on another personal finance site (actually, a forum): http://keskustelu.kauppalehti.fi/5/i/keskustelu/thread.jspa?threadID=137213&start=15&tstart=0 for an interesting discussion about what to do when your mortgage is finally paid off; it seems that one of the readers has been tracking my ‘rules’ on this subject:

And the capital not used optimally if the housing is free of debt. Harvat yrityksetkään toimivat kokonaan ilman velkaa. Few firms are not entirely without debt. Tällä kaverilla on kaksi hyvää sijoitussääntöä: This guy has two good investment rule:

http://7million7years.com/2008/02/04/how-much-to-spend-on-a-house/ http://7million7years.com/2008/02/04/how-much-to-spend-on-a-house/

1) Asunnossa kiinni olevan oman pääoman osuuden tulisi olla < 20% net worthistä 1) The apartment attached to the capital base should be <20% of Net Worth
2) Kaiken muun kulutustavaran (auto, huonekalut ym.) osuus net worthistä on oltava < 5% 2) All other consumer goods (car, furniture, etc.) accounted for net Worth must be <5%

Nämä takaavat sen että >75% omaisuudesta on jossain tuottavassa käytössä, kuten vaikka osakesalkussa tai sijoitusasunnoissa. These will ensure that> 75% of the property is a productive use, such as even though the stock portfolio or investment homes.

Minulla täyttyvät molemmat ehdot, mitenkäs muilla palstalaisilla? I have met both conditions, palstalaisilla How did the other? En edes laske autoa ym. pikkusälää mukaan henkilökohtaisen taseeni loppusummaan. I do not even calculate a car, etc. small stuff “personal taseeni the final sum.

Thanks for a great summary, Jni, Google Translate isn’t perfect, but I’m sure my readers will get the gist

BTW for those who haven’t worked it out yet, 7 miljoonaa 7 vuotta is how you would say 7 million 7 years in Finland.

The Myth of Multiple Income Streams …

For a while now the web has been a’twitter with ebooks spouting the idea of Multiple Income Streams …

… literally, here is an example from Twitter:

Multiple Income Streams is the ONLY way to Achieve Extreme Wealth …

I’m not so sure that was true for me – hence it can’t be ONLY

But, is it true even if we substitute ‘usually’ for ‘only’?

Again, I don’t think so … in fact, I feel that most people achieve a very high level of INCOME from just one of their ‘multiple streams of income’ (that is, even if they have more than one) … for me, it was very much an 80/20 thing:

- One of my businesses produced $1 million a year EBITDA (earnings before bullsh*t),

- The other produced $200k a year (still does).

Now, for those who are astute, you will see that I twisted the original statement from ‘wealth’ to ‘income’ … and, as we all know by now:

Income [does not equal] Wealth

So, this is what I think: you don’t necessarily need multiple streams of income, but you DO need a place to store the income earned – and, it’s the wealth that “passively” builds up there that creates the true wealth (at least, it did for me i.e. my businesses fueled my property investments, and THAT’S what took me to my first $7 million) – and that more equates to my Perpetual Money Machine concept than it does to the usually espoused Multiple Income Streams Fallacy … they may seem the same, but they are very different:

Build your Perpetual Money Machine and prosper!

The Myth of Passive Income …

Flexo at Consumerism Commentary says that the Wikipedia entry on “passive income” is WRONG.

Flexo is right!

Wikipedia says:

Passive income is a rent received on a regular basis, with little effort required to maintain it.

OK, that’s pretty obviously incorrect, so let’s adjust this slightly to say: “Passive income is any income received on a regular basis, with little effort required to maintain it”.

Better?

Yep! It does sound a little better – aside from the repetitive tautology – so, let’s see a little more of the Wikipedia entry:

Some examples of passive income are:

• Earnings from a business that does not require direct involvement from the owner or merchant;
• Rental from property;
• Royalties from publishing a book or from licensing a patent or other form of intellectual property;
• Earnings from internet advertisements on websites;
• Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;
• Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income;
• Pensions.^{[dubious – discuss]}

I love the little ^{[dubious – discuss]} attached to the last one …

… it should be attached to all of them!

You see, whilst I have also been guilty of (mis)using the term “passive income”, at least I know fantasy from reality; let’s start by reexamining the Wikipedia list:

1. Earnings from a business that does not require direct involvement from the owner or merchant;

Q: If you put the owner of such a business in one corner of a room with Santa Claus, The Easter Bunny, and the Tooth Fairy sitting in the other three corners, and you put a bucket of gold in the middle, who would be the first to get to the gold?

A: No one, because there is NO SUCH THING as Santa Claus, The Easter Bunny, the Tooth Fairy … or, a business that does not require direct involvement from the owner!

2. Rental from property;

This is great, especially if you have (i) a flawless property manager, and (ii) NO taxes, vacancies, repairs, maintenance, mortgage payments, refinancings, etc., etc.

3. Royalties from publishing a book or from licensing a patent or other form of intellectual property;

Agree; totally ‘passive’ … that is, AFTER the book writing, editing, deadlines, interviews, and book signings … and, BEFORE the next book writing, editing, deadlines, interviews, and book signings.

4. Earnings from internet advertisements on websites;

Please! Exactly HOW do you ‘passively attract’ readers to your site to get the ‘earnings from internet advertisements on websites’?!

5. Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;

Asked: “Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service”
And, Answered: “that must be renewed on a regular basis in order to continue receiving its benefits” … we addressed this exact issue for (another) Scott, not so long ago!

6. Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income;

Now, this is interesting – if it is indeed true that in “the United States, portfolio income is considered a different type of income than passive income” – because (at least, to me), dividend and interest income is one of the MOST PASSIVE of all of the items on this list … interest rate changes, market crashes, poor earnings reports, and other reasons that a Board may reduce or eliminate the dividend, aside.

7. Pensions.

Strange that whomever reviewed this entry felt this one to be ‘dubious’ … ‘old style’ pensions (like government ‘lifetime pensions’, and the ones that are sending the car companies broke) seem to be the most passive of all of these!

If you disagree, please drop me a comment (below) then try and go on an extended vacation and NOT: (a) answer your cell phone, or (b) check your e-mails, or (c) worry about your [insert "passive income" source of choice]

It's all about the curve – Part II

Nobody wants their finances to grow in a straight line (too slow, and inflation really hurts), so let’s continue this series with a look at a faster way to grow your money … one that is well covered in mainstream personal finance blogs:

The Compound Curve

When we do one simple thing [AJC: again, ignoring the effects of inflation], the whole picture changes dramatically:

If, instead of withdrawing/spending the interest earned on the CD, we ask the bank to reinvest the interest then we create an effect known as compounding. Where both the principle (i.e. the lump sum that you originally deposited) and the interest (then the interest on the interest and so on …) earn interest. The effect, as you can see, can be quite powerful … slow, but powerful.

In fact, ‘urban legend’ has Albert Einstein calling compounding “the most powerful force in the Universe” … urban legend because Einstein would never have called such a relatively [pun intended] slow geometric progression ‘powerful’ when he had nuclear reactivity to play with (a far quicker and more dramatic form of compounding).

Be that as it may, compounding is something well understood, but always remember that it is only powerful to the extent that it may keep you out of the ‘poor house’ – but, not by much – hence, compounding is really only a basic (but necessary!) Making Money 101 saving strategy:

- without it, you don’t get to first base, financially-speaking, but

- with it, that’s about all you do.

You can – and probably already do, to a greater or lesser degree – apply the power of compounding to your job/profession (be it as paid employee or paid consultant) when you reinvest some of your earnings into investments such as mutual funds (e.g. via your 401k), direct stocks, and real-estate … and, of course, reinvest (instead of withdraw and spend) the dividends (a.ka.a ‘profits’) from those investments.

We're not there yet, but …

… who knows?

Inflation may just rear its ugly head, as Modern Gal suggests:

My bet is that the long-term successful investors (like Warren Buffet) see the next big cyclical turn as being the threat of global inflation.  And by this, I mean not inflation as in 3-4%, but I mean a change in cycle to having structurally higher inflation for a number of years.  While nominal wages have (mostly) risen, real wages have not kept up with inflation for many workers.  This is the problem called the money illusion.  In other words, because your paychecks are growing larger over time, you think that you think of this as a raise or cost of living increase.  In fact, if the cost of living outpaces your raises, you have in effect gotten poorer, or your salary has lost real value.

I don’t normally talk about things that you can’t do today – and, the things that I do talk about often need to be adjusted for which part of the Making Money Cycle you are in – but, I will make a couple of suggestions and you can bookmark this post in case inflation does hit before I get a chance to write a follow up post

Firstly, what is high inflation?

To me, ‘high’ and ‘low’ are pretty meaningless terms in an inflationary context, but Modern gal suggests “let’s say inflation crept up to 5% a year … not many people are expecting a shift to a very high inflation rate, like 10%.”, which seems like a pretty reasonable range to work with, if you ask me.

Modern Gal then suggests that inflation-adjusted securities such as TIPS are sensible high-inflation strategies …

… but, here is what I think, IF you think inflation is heading up and you are in this stage of the Making Money Cycle:

Making Money 101

No great change here; get your spending under control; avoid consumer debt (although, strangely enough, it’s actually slightly BETTER for you if inflation rises AFTER you accrue the debt because your payments stay fixed – unless interest rates also rise – but, your income rises due to ‘cost of living increases’); and save money … but, if this is all you do, that inflation will eat up a lot of the benefit; as Modern Gal says:

Let’s say you have $100,000 in savings today, but you want to hold off spending until retirement.  If you decide to put your savings under a mattress (meaning you earned zero interest or dividends), in 25 years time, at a 3% inflation rate, your $100k would be the equivalent of about $48k in the future.  But let’s say inflation crept up to 5% a year, a rate that was not unusual a decade ago. Under this scenario, your $100k should be thought of as less than $30k in 25 years time.  And, if we end up with double digit inflation at 10%, the 100k adjusted for buying power in today’s dollars looks like a measly $9230.

The key Making Money 101 change (although, this is a strategy that I also recommend in the current low inflation / low interest rate environment) is to lock in your interest rate on your own home, ideally before the high inflation (which can often trigger higher interest rates) kicks in.

Making Money 201

Here, we want to take advantage of inflation which tends to push the prices of things up: the higher the rate of inflation, the more prices go up …

… so, the trick is to buy something that will rise in price with (or over) inflation BUT pay for it in current-day dollars.

What can do THAT???

Well, real-estate can, particularly in the USA where you can leverage an unusual quirk of the lending industry: you see, you can buy real-estate that will go up in value as surely as your can spell I N F L A T I O N …

… and, you can buy it with the Bank’s money and lock that ‘price’ in for up to 30 years (on some residential property).

So, that $535 payment (at 5.75% fixed interest for 30 years) STAYS at $535 even as the $100,000 property doubles in value to $200,000 over time … and, the higher the inflation rate, the quicker the property doubles … no matter what happens, your payments stay the same.

Obviously, if spending $535 p.m. was ‘good value’ when the property was $100k, it must be twice as good value when the property reaches $200k!

So, if you know that high inflation is increasing your property portfolio more rapidly, why wouldn’t you buy as much as you can get your hands on if:

a) Current interest rates seems low, and

b) If you felt that a period of higher inflation was coming?

Making Money 301

We are obviously not looking to acquire more debt, here, but there’s no reason to pay off debt either IF:

1. The interest rate has been locked in at levels lower than current interest rates, and

2. You can’t put the money to work for you in ’safe’ investments elsewhere, and

3. The properties produce enough ’spare’ (after mortgage interest, costs, and provisions against future vacancies and repairs/maintenance) cash-flow to satisfy your daily needs.

If the property meets these criteria then it’s probably reasonable to assume that your income (i.e. rents) will keep pace with inflation, as probably will your capital (i.e. the building itself).

Of course, if you haven’t already bought the property by the time that you stop work [AJC: a MUCH better word than 'retire' for us 49-years-young-stopper-workerers ], then I would advise that you look at these alternatives:

i) Real-estate (this time, bought with very high deposit / very low borrowings … if any), and/or

ii) TIPS – Treasury Inflation Protected Securities … although, you will have ideally bought these while inflation was still low(er) as competition for these may have pushed prices up / yields down, and/or

iii) Dare I say it: dividend stocks (or, any portfolio of stocks that you are happy to sell down a portion of each year to create your own ‘dividend’

…. but, avoid cash, or cash-equivalents (CD’s, non-inflation-protected bonds, etc.) as inflation will almost literally gobble these up!