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Wealth generation has become a topic of discussion over the years. Most people are looking for ways that they can apply to acquire and multiply wealth. Cash flows and capital gains are some of the topics that come in mind in relation to wealth generation. Form the book titled Cash Flow Analysis and Forecasting: The Definitive Guide to Understanding and Using Published Cash Flow Data, cash flows are generated when an asset is rented or leased for a specified period. In this case, the owner retains possession after the lease period. The book Capital Gains, Minimal Taxes: The Essential Guide for Investors and Traders postulates that capital gains result from sale of assets, both tangible and intangible. This fact means that the owner loses ownership after disposing the asset. Investors should consider cash flows over capital gains because they maintain ownership, ensure continuous income, and offer an investor a chance to recover from losses.
- Cash flows maintain asset ownership. When leasing or renting an asset, the owner still maintains possession after the agreed period. This fact means that the asset will generate income over time if it is not disposed. A good example of cash flow is renting out an apartment at a specified amount and time. In the case of capital gains, the owner of an asset makes income by disposing it at a profit. In real estate, capital gains can be achieved by selling a house at a profit. In this approach, ownership of the asset is transferred to the new buyer after the sales transaction is made. Therefore, an investor should consider cash flows over capital gains because they can continuously generate income using the asset over time until it becomes obsolete or they decide to dispose it.
- Cash flows ensure continuous income. An asset can maintain continuous cash flows until it becomes obsolete or is disposed. This fact means that the owner will continuously get income over time. For instance, when an investor purchases shares from a company, they can make income from dividends and still maintain their shareholding. In this approach, the investor will continue earning income from dividends until they decide to sell the stocks. In capital gains, the investor has to sell the stock at a higher value in order to make profits. However, they will lose their shareholding to the buyer after selling stock. Therefore, there is no continuous income in capital gains.
- Cash flows offer an investor a chance to recover from losses. Loses are inevitable in any business. Besides, the market is normally dynamic, which means that investors are likely to experience losses or profits at specific times. When business is low, cash flows are also bound to reduce. This fact means that the owner of an asset is likely not to generate any income during this period. However, leasing or renting an asset gives an investor the opportunity to change strategies and generate more income using the same assets when business stabilizes. In capital gains, losses cannot be recovered using the same assets once they are sold. Therefore, capital gain losses cannot be recovered after disposing an asset.
Deciding between cash flows and capital gains can be a challenging task for investors. However, in my opinion, cash flows are better than capital gains because they enable investors to maintain ownership after the specified period. Cash flows also ensure continuous income to the investor and offer an opportunity to recover from losses. This fact makes continuous cash flows the best approach in wealth generation