Cash Flow or Index Funds?

Originally our FIRE plan was more the traditional route: Invest in index funds over the course of X years and then you’ll be able to retire once you meet the 4% rule. So, if you save $1,500,000 in index funds, you could withdraw $5000 a month via the 4% rule. Now, I always planned to aim for 3% and to have more funds than we thought we needed, but that was the basic gist of it.

There is also the cash flow route to FIRE. Meaning you have some form of investment that gets you mostly or entirely passive monthly income that exceeds all your expenses. That way your need to work is non-existent and you move on to living your best life. Basically, you can make $5000 a month in mostly passive income or you can put $1,500,000 in index funds and withdraw 4% to make $5000 a month instead. Whichever works best for you. There are pros and cons to either approach for sure.

Since I have been in real estate, my income has been highly irregular. Previously, Mr. FOGA would have a paycheck that would fill the gap for any time when I wasn’t getting a paycheck. Since he has “retired” and become a househusband, that safety net is gone and the need for the sinking fund/pre-paying expenses has increased. We are fine as far as money goes, but how much we have greatly depends on when you catch us. 😂 Due to that, cash flow has become a more important factor, which has been changing how we do things. So, right now we are aiming for a bit of both.

This is clearly seen in the fact that we are purchasing a rental property when I have mentioned in the past that I wasn’t sure we wanted the headache. Yet, the idea of cash flow was definitely welcome given the fact that it would be a steady income coming in (assuming it rents and all is well). Obviously, one rental is not enough for me to quit my job, but it does lower my dependence on my job. That is pretty awesome and a good place to start for now. One step at a time on the path to FIRE.



If you are aiming to FIRE, are you looking at index funds, cash flow, or a combination of both?


Feature Photo by Esther Gorlee on Unsplash

6 thoughts on “Cash Flow or Index Funds?

  1. I’ve gone back and forth a bit. It’ll be a combination. I dabbled in rentals as you know but it’d take several (and the accompany headache) to make an appreciable dent in our expenses so I backed away from that. I built up a relatively solid but small nest egg in my stocks portfolio over the past ten years, and I added index funds pretty aggressively when I learned more about them a few years back. The stocks portfolio won’t yield a ton from dividends throughout the years so in the big scheme of things it’ll be pocket change. We’ll probably be mainly depending on the index funds.

    1. Yeah, I remember your rental stories. Part of what made me go, “ehhh….maybe another time.” 😂 But, it’s a good deal and the pricing keeps going up so if it sucks, I should be able to sell it for a profit. We’ll see though. In the end, I think it’ll be index funds and IULs, but rental income would offset the monthly, so that would be awesome for us right now. We’ll see.

  2. I’m conflicted on this. Cash flow seems ideal right now because I just want to slow down NOW. But since I’m a late starter, I need to accelerate my investments into index funds to really benefit from it. That said, have you explored REITs? It does give you some income without the headaches of managing property.

    1. I have looked at REITs, but they seem to be more expensive and do not perform as well as index funds or rentals. I was looking into Fundrise as well since people have had good experiences with them, but we are stretched a little think right now, so that will be a next year thing. What about you? Have you been doing REITs?

      1. Yes bought a few local REITs. I rather enjoy getting the dividends. I bought at a good time, during the pandemic when Borders were still shut. When borders reopened they soared and I earned quite a bit of capital growth. I am rather addicted to them now lol.

Leave a Reply