Investing for Cash Flow

Something struck me while reading Robert Kiyosaki’s latest book, “The Conspiracy of the Rich“. As usual, his new books always have resemblance in terms of content to his previous books. But I did not remember coming across this concept while reading “Rich Dad Poor Dad” or “Cash Flow Quadrant”. Maybe this is what people mean by learning new things from revisiting books that you have read. The concept that I am talking about is ”investing for cash flow” rather than the commonly accepted “investing for capital gains”.

Investing for cash flow means that you are investing in assets that will generate a regular and sizeable income stream to your wealth. While for capital gains, you buy an asset that will go up in price in the future. Robert is saying that most people invest for capital gains which is more risky due to the uncertainty of the future. This is especially so in the stock market where the probability of losing the value of the assets during a market crash is too high. Rich Dad’s analogy will be the game of Monopoly where every player aims to increase cash flow by owning more properties, houses and hotels and collecting rent from them. There is no aim of capital gain involved.

As he gave a few examples vaguely, I am not clear what are good cash flow generating assets to invest in. Robert’s cash flow assets are:

1) Business
2) Real Estate – rental collected every month
3) Oil – Partner of oil drilling. A discovery will entitle a part of the oil and gas sold monthly
4) Royalties – from his books, games and financial education products

Out of the 4 cash flow generating assets, it seems like real estate is more likely the choice for ordinary investors, at least for me. Firstly, it enables you to get the biggest loan from the bank which translates to biggest leverage that you can ever get from controlling an asset. Secondly, the interest for the debt is the lowest. Thirdly, there is potential capital gains alongside with regular cash flow.

Other than the four examples, I cannot really think of what other good cash flow generating assets available for investment.

Dividends from stocks? You probably have to own alot of stocks to generate a decent cash flow.

Coupon payments from bonds?

Lend money and collect interest via Prosper?

Are there other good cash flow assets you can think of?

2 thoughts on “Investing for Cash Flow

  1. Robert Kiyosaki introduced this concept to me many years ago. I have been able to change my paradigm and find professional investments that return extremely well regardless of market direction. Unfortunately, the short term gains are taxed at much higher rates than long term capital gains. Still, it makes much more sense to me to trade for shorter term gains and accept the higher tax rates as a cost of business.

    There are options that I am currently investigating to offer me protections from these higher short term capital gains rates, but they are outside the scope of this post.

    I have found trading automated forex systems offers me the ability to create a passive cashflow of 5-10% returns monthly and quite consistently. It requires a thorough understanding of leverage and position sizing and a complete shift in paradigm from traditional investing, but after the learning curve, I would invest no other way.

    Further, I have found that starting with a lower amount of investment capital and pulling profits periodically as they occur reduces my risk in the market until I have obtained a 100% return on my investment dollar. At this point, I can trade for cash flow as well as capital appreciation and realize an unlimited return on my initial investment dollar.

    Many may argue this point, but few of them have any experience in trading the markets in this way. Be careful who’s advice you listen to. Many financial advisors tell you that systems trading is risky, but then they give advice to their clients about investments and make most of their money from the fees that they charge their clients rather than from their own investments.

    Anyway, I am glad that you are seeking ways to invest for cash flow rather than capital appreciation. Real estate is an option, but carries significant risk in the event of a bursting bubble. It is hard to unload all of your real estate to prevent going upside down in your mortgages in a bubble economy. You must understand and be able to manage risk.

    Massive Success,

    Alan Mohring

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