First the Disclaimer: This is a thought-provoking article that draws upon real world examples, articles, books and websites that are readily available to the public. This article is not intended to offer investment advice. Any actions that you take in the market place should be the result of your own financial education and consultation with a licensed professional.
This is the conclusion of my 3 part series that began with Home Ownership: The Biggest Financial Scam of the Twentieth Century and was followed up by parts one and two of The Stock Market: The Second Biggest Financial Scam of the Twentieth Century.
What is Cashflow? Cashflow simply put is the flow of money. Positive cashflow is the revenue or income that a person receives from a job, investment or business. The majority of people derive their cashflow from their jobs. To the extent that they come to derive cashflow from investments and or businesses is the extent to which they will become financially free when their working years are over. Negative cashflow is the revenue that a person loses due to an investment or business.
Most people are taught to invest for capital gains rather than positive cashflow. Investment success depends on appreciation of the underlying ?asset? rather than income production. This is the basis for ?investing? in a primary residence or the stock market for wealth creation. Yet, success of the capital gains investment strategy is by no means assured. No one can guaranty that an asset will appreciate in value, despite the tendency to quote historical gains as justification for an investment today. The current housing and market crises highlight the fallacy of depending on capital gains to create wealth. The housing crisis alone will destroy billions of dollars of personal wealth. From the October 25, 2007 Joint Economic Committee report:
The JEC report found that the subprime catastrophe is likely to accelerate the downward spiral of house prices. Based on state-level data, the report estimates that by 2009:
? 2 million foreclosures will occur by the time the riskiest subprime adjustable rate mortgages (ARMs) reset over the course of this year and next.
? Approximately $71 billion in housing wealth will be directly destroyed because each foreclosure reduces the value of a home.
? More than $32 billion dollars in housing wealth will be indirectly destroyed by the spillover effect of foreclosures, which reduce the value of neighboring properties.
? States will lose more than $917 million in property tax revenue as a result of the destruction of housing wealth caused by subprime foreclosures.
? The ten states with the greatest number of estimated foreclosures are California, Florida, Ohio, New York, Michigan, Texas, Illinois, Arizona and Pennsylvania. But there are several others that are close behind in the rankings.
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Tags: Bond Returns, Bonds, Capital Gains, Cashflow, Housing Crisis, Investments, Long-term Investments, Market Returns, Negative Cashflow, Positive Cashflow, Retirement, Retirement Savings, Savings Calculators, Stock Market, Stock Market Investment, Stock Market Returns
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