Walk on the money for the rest of us. This is a personal financial on money. How it works, how to invest it, and how to live without worrying about it.

I'm your host, David Stein, today is episode 369. It's a year in Q&A episode.

I sent out an email to the Insider's Guide email list and asked for questions on money, investing the economy, really on anything.

We received over 80 questions. I'll answer about a dozen, but many of the other questions will be used in future episodes of the show because all of the questions were very, very good.

This is the last episode of the year. We're taking our year and break. We have a family wedding. We have the holidays.

Our next episode of episode 370 will be released on Wednesday, January 12th.

Here's the first question. The money for the rest of us approach to valuing most investments is cash flow, expected cash flow growth, and what investors are paying for that cash flow.

Are there other formulas that are commonly used? If so, what makes this formula more compelling?

Cash flow, cash flow growth, and what investors are paying for the cash flow are really what we use to estimate investment returns.

For casting returns, a component of that is valuations. We can value assets based on cash flow.

So what's the price to cash flow? We can look at investments on a price to earnings basis. We can look at their yield relative to historical yields.

We can look at valuation on different accounting metrics such as price to book.

For calculating expected returns, we use those three components because that is the underlying math of investment returns of calculating performance.

Now sometimes we use different words for that, but at its core it's the income plus the capital appreciation of the asset.

Your return of any asset will be a function of the income if there is income, the rent, interest, dividends, and the second is did the asset go up in price?

Was there appreciation? If it's an apartment building, rental real estate, how much net income is there each year after expenses?

And when you're ready to sell that building, we were able to sell it for more than what you paid.

I don't know of any other way to calculate returns or estimate expected returns because that's just the way the math is.

As an investment advisor, we would generate performance reports for clients using those elements.

And so that's how it's done, but there are definitely other ways to actually value an asset to decide if it's overvalued or undervalued or not.

But those three components of cash flow, cash flow growth and what investors are paying for that cash flow now versus later are the underlying elements to get to the income and the capital appreciation, which is what performance is.

As a follow up, there's a question from a different listener on is there an accurate way to estimate asset returns over a longer period of time than 10 years, specifically 30 years.

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