So I love talking about this 40–40–20 rule so much to where I posted a video on Linkedin a little while ago, about this topic. I talked about what the 40–40–20 rule really means and how it plays a huge part of my overall portfolio.
Again, thanks to Rick Melero for really encouraging me to study this 40–40–20 rule and implemented that in my life.
In this video I posted on LinkedIn, Zach and I were going back and forth in the comments, and he asked…
“Why put in 40% of the passive income producing investments if you’re not near retirement? Wouldn’t it make more sense to have it in appreciating assets as well and then to shift it into passive income producing investments at or near retirement age? I’m not trying to argue in the methodology, just wanted to ask your opinion.”
I found it was an excellent comment that he made so I replied…
“Because cashflow reigns king and always will regardless of age. Cash flow reigns king. It also probably reigns queen too. It doesn’t matter if you are young, it doesn’t matter if you’re old. The more cash that you have coming into your bank account, whether it’s a few thousand dollars a month or $10,000 a month or $50,000 a month, you can use that at any point in time.”
If you’re older, you’re probably going to use cashflow for different things than you would if you’re younger. But having cashflow, creating income, producing assets now…..they’re income producing!
I don’t know how to describe that more directly. It is money in the bank. Then it happens again. Then again, money in the bank. And then guess what happens again? Money in the bank. Money in the bank. Money in the bank.
It happens every single month.
If you do it the right way, it’s taken care of forever. So why would you only bank on appreciating assets? You shouldn’t.
You should also have income producing assets. And guess what? The beauty, if you do it right, of income-producing assets is they also appreciate over time, and then you have a fond appreciation of them as well.