If you’re like most Americans, the previous year was probably hard—as COVID-19 has created rolling shut-downs since March 2020.
Unemployment reached staggering levels in the midst of the pandemic, and while the situation has improved to some extent, millions of people are still struggling to find their new normal.
In this article, we’re going to take a look at cash flow investments and how they can be a great way for people to make money that can supplement their active (earned) income.
We’re not going to get too technical, but we promise that by the end of this guide, you’ll have the knowledge you need to set yourself up for a big payoff down the road.
Keep reading to learn all about the various types of cash flow investments.
What Are Cash Flow Investments?
As its name implies, cash flow refers to the amount of money that you see coming into your bank account. Businesses use cash flow to measure profit, but it applies to individual finances as well.
Cash flow is simply a measure of how much money there is (the “cash”) and the the direction it is flowing (the “flow”). Put simply, is the money flowing into your account? Or, leaving it?
Thus, cash flow investments are investments that pay you distributions at a regular interval, usually monthly or quarterly. Non-cash flow investments, like non-dividend stocks for example, can still appreciate in price over time—which is why investors buy them.
However, cash flow investments have the distinct advantage that they can grow in value over time and will pay you at regular intervals. Therefore, the main benefit of cash flow investments in comparison to other investments is that they will help you to cover your day-to-day expenses.
Remember that investments are usually a form of passive income. That means that in most cases, you won’t have to put in labor to turn a profit. That is what makes them amazing!
Common Types of Investment Income
There are dozens of different ways to generate income through investments. Some of the most common cash flows from investing activities include the following:
If you’ve ever invested in the stock market, you are probably familiar with the concept of dividend paying stock.
When you buy a certain percentage of a public company on the stock market, you become a shareholder. To encourage partial owners to keep investing and to drive up the value of their share price, companies sometimes offer direct payments, known as dividends.
Dividends can give you the capital you need to invest more and ultimately make more money.
Cash flow real estate investing is another one of the most popular ways for people to generate long-term profit. In fact, with the right tactics and setup, you can generate a lifetime of cash flow through real estate investing alone.
However, it does take some more effort on your behalf to become a real estate investor. It requires you to be comfortable with investing large amounts of time and money. Luckily, the payoff can be worth it.
Many people use real estate as a form of active income, instead of a passive one. It can be hard to juggle being a landlord and maintaining properties if you also have to work a 9-5 job.
Rental income doesn’t have to come from real estate though. You could also be paid rental income for renting out storage space, parking space, or a valuable business asset (like a piece of machinery), for example.
Similarly, if you’re even gone kayaking or boating and you paid an hourly rate to rent the equipment, you paid the other person or company rental income.
Next, we have interest income. When you lend your money to someone else, you can make a profit off of it in the form of interest.
Before you put your money in any bank, credit union, or other financial institution, it’s worth researching what their interest rate is. You can earn interest income from high-yield savings account, certificates of deposit (CDs), all types of bonds, peer-to-peer lending, high yield crypto accounts, and so much more.
Anytime you lend out money and get paid a premium for doing so, you have earned interest income.
Common Types of Cash flow Investments
To achieve your investment goals, there are several concrete examples of the types of investments that you can use.
1. Bank Accounts
As mentioned, you can earn investments by simply putting your money into the right savings accounts. Keep in mind that the interest rates paid on these account are often disappointingly low (often under 1%).
The same goes for money market accounts and certificates of deposit.
Do your research to ensure that you get the interest rate you want and that you can start growing the profit you need.
Bonds are another interesting form of investment you can look into. As with other investments, you can choose a riskier bond for a potentially high payoff or a safer option with limited growth.
The federal government backs some types of bonds while corporations issue others. Corporate bonds are usually the riskier ones since there’s a chance that the business will go under.
3. Dividend Stocks
The stock market is always a place where you can invest your money. There’s also a large amount of variety—certain stocks are safer options, while other ones are high risk yet high reward.
We talked above about how dividend payments can further increase your profits. Like the stock market itself, they can either be risky or safe, depending on the company in question.
Some companies take pride in offering lucrative dividends that get bigger each year. Companies that offer these types of distributions include:
- Universal Corp – 5.72% annual dividend
- Altria Group Inc. – 7.02% annual dividend
- Iron Mountain Inc. – 5.63% annual dividend
- Edison International – 4.65% annual dividend
Remember that dividends can change at any point in time. They also reflect the success of the company—if a company has a good year, they might increase. During periods of instability, however, they won’t be as high.
4. Peer-to-Peer Lending
When most people need to borrow money, they head to a bank or some other brick and mortar financial institution. But not everyone wants to do that. Some people prefer peer-to-peer lending.
Also known as crowdlending, peer-to-peer lending is when an online platform connects people willing to loan their money to people that need it.
As a lender, you determine the risk you’re willing to take, as well as whether it’s worth lending your money to a particular business or individual. In the right circumstances, you can see serious returns on your investments.
5. Rental Real Estate
If you’re thinking about investing in real estate, your goal should be to achieve a positive cash flow. You don’t want to continuously have to invest your own money into maintaining your properties—they should pay for themselves.
One thing that many people do is buy property when they’re young. Once they can pay off their mortgage, they can then profit from the money that they generate (and use it for the occasional maintenance or upkeep project).
This allows many people to have a comfortable and worry-free retirement.
If you’re most ambitious, you’ll also was to collect rental properties. These can be single family homes, which are a type of residential investment. If you’re a go-getter, you can also buy commercial assets, such as apartment complexes, mobile home parks, storage facilities, mineral or timber rich land, office space, industrial facilities, and so much more.
6. Crypto Exchanges
These exchanges typically pay lower yields (usually 3-5%) on cryptocurrencies, such as Bitcoin and Ethereum, while paying higher rates (often 8-10%) on stablecoins, such as Tether or USDC, for example.
The methods used by exchanges to produce interest income vary, but their approaches can include lending your assets out to others, lending liquidity to other exchanges, and staking, among other approaches.
With this said, you’ll want to be quite careful with this approach, because two major crypto exchanges (Voyager and Celsius) recently filed for bankruptcy, freezing customer assets while the proceedings are underway.
Enjoy Cash Flow Investments for Life
Remember that in the world of cash flow investments, it can take a bit of risk to get results. If that makes you worried, then stick to safer, more stable investments.
Are you looking for more life-changing advice? If so, dig into our other financial articles here.