Jun 24, 2010

Frustrations With Toll Roads & Tickets Create Thoughts on Frugality and Fixed Income

I am here in the Windy City (Chicago) for a conference on investment analysis with Morningstar and a chance to meet up with clients. My travels took me 3.5 hours west for lunch and 3.5 hours north for dinner. Toll roads and tickets.  The road was littered with toll booths. Most of the stops only required 60 or 80 cents (not enough to buy a cup of gas station coffee) but the money really adds up. Cruise control on my rental car saved my lead foot from accruing any tickets, but the state of Illinois is certainly raising revenue through traffic violations as well. 

My travels across the state took about 18 hours yesterday, giving me plenty of time in the car to engage in lively conversation with myself. I began to relate the revenue raised by the state of Illinois with fixed income. Roads with a toll booth create revenue and are considered income producing assets (i.e. fixed income). Roads without toll booths promote commerce but they do not generate revenue and act as a liability.  

Some very popular assets generate NO REVENUE such as tracts of land and gold. These assets may appreciate, but in the interim they sit and collect dust. When sold, they aren't taxed efficiently either. Other assets, bonds, rental real estate, dividend paying stocks, etc, change in value. The cost of these assets go up and down, but they are also creating revenue, paying coupons and producing income. In some cases such as Master Limited Partnership, rental real estate or a business, they may also help with taxes. 

What are your assets doing? Are they collecting dust as they appreciate or depreciate, or are they creating income for you? There are certainly places in life for assets that don't pay income. Your home is one of them and gold in a safe may not be a bad idea, but the majority of an investor's assets should be achieving something. 

I'm on the road again…the tolls that weren't enough to pay for coffee have added up. Most of the cash in my wallet disappeared into the abyss as I threw 60 cents into this booth and 80 into that. Each car that passes gets the state of Illinois that much closer to staying in the black. 

The same is true with our choices we make every dayEach cup of coffee that you purchase seems like a little treat, meaningless in the grand scheme of things, but just like the toll booths that money adds up and each cup of Joe is a step further from financial freedom. We also need to seek out ways to generate consistent and reliable income from our investments, similar to the stream of revenue from these toll booths. As a country and as families, the only way we will find financial freedom is to tighten our belts to save morespend less, and choose our assets wisely. 

Well, the conference is about to begin and I am here to find companies who are doing just that; managing their finances well. I'll make sure to follow up next week with an article on what some of the best investment analysts in the country had to say. 

Missing Colorado and the free roads, 

Adam

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