Let's Cover Your Assets

Okay John,” I said, “earlier I said there were four major classes of assets to invest in in the game of financial independence. What are they?”

“Let’s see … I believe rental property, dividend paying stocks, covered call options, and a business. Did I get those correct?”

“Yes, exactly right,” I said.

“Do I get a cookie or a gold star?”

“I also mentioned Buffett-style investing. Remember, Warren Buffett sees the retained earnings of a company as his cash flow in a sense. He uses Return on Equity to gauge his return in an investment. Warren takes a paycheck from his company at $100,000 a year. This allows him to pay his bills and in our world, creates his financial independence. He leaves the rest of the capital in the company to compound, mirroring the strategy of the companies he invests in … they leave the earnings in the company. Warren figures where else can he get a return of 25% a year except in a company that is generating 25% in earnings a year? His financial statements as it relates to cash flow looks like this:”

“Keep in mind that Buffett uses his income from his business as his personal cash flow to pay his bills. The rest he leaves in the business so his business can his assets. Our mission is to get you to the point of financial independence, the point that Buffett has reached with his income, and then you can make the same decision with the excess cash flow. You can reinvest your money to compound and grow a substantial net worth or use it for cash flow. Additionally, Buffett does it through a business that makes stock equity investments in other companies. You can choose to do it through the best asset class that suits you.