Investing for Cash Flow: Why Should You?
The stock market is indeed a risky place to park your money. While it is true that it is one place where you can get rich instantly, it is also where you can lose a huge chunk of your funds. But thanks to cash flow investing, people have devised a way to earn even when stock prices go up and down very unpredictably.
What does investing for cash flow mean?
Investing for cash flow refers to an investment strategy where the main objective is to generate a steady flow of income. Through this, risks associated with your investment portfolio are reduced. Cash flow is new money created out of an investment. This occurs in the form of dividends, interest, or rent. Investment advisors often pick stocks that have solid performance but which also pay its investors stable flow of dividend income. Investing in a rental property is also an example. The rent you get from your property investment rarely changes even when the market price changes rapidly, providing you a constant flow of income.
Why should you invest for cash flow?
It improves returns even when the market performance is lackluster.
Imagine your investment portfolio unable to generate income because the stock market exhibits a flat line. Without considering for dividend income prior to picking stocks, you wouldn’t have a way to generate income. But if you are investing for cash flow, you are likely to choose those that have good track record in paying high dividends so that you can continue earning income even if the stock prices are not appreciating. In case of a rental property asset, even if the market price goes up or down, you can count on a fixed and regular rental income.
It offers flexibility.
You can easily use your newly-procured source of income to add more to your portfolio or allocate it to other investment opportunities. If you sustain such discipline of reinvesting your cash income from dividends or rents on a regular basis, then you are on your way to a more accelerated wealth growth.
It reduces effects of falling prices.
When the prices of stocks in your portfolio go down, the cash income from dividend payments helps to mitigate the negative effects. Therefore, investing for cash flow is a way to reduce volatility.
It provides peace of mind.
Even when the price of an asset, a property for instance, depreciates, you are guaranteed to get a regular income from your investment as long as your property manager performs well in supervising your asset. Meanwhile, you can afford to care less if the price of the stock you have picked goes down by a few percentages when you are already raking a regular dividend income every quarter. Many believe and had in fact proven that investing for cash flow is a great investment strategy. It offers protection from a volatile market through a steady flow of fixed returns.
Aside from this, reinvesting these income flows in other productive investment opportunities can accelerate gains even further, providing a powerful way to grow your income.