Minggu, 31 Januari 2010

Investing for Income

Investing for Income

There are basically 2 ways of Investing.

01) Investing for Capital Gains &

02) Investing for Cashflow (Income)

I prefer the second form of investing – Investing for Income. Most of the people in this world think that, Investment is only a game of money. But well, this is not true. Investment is a game of money and time both. You can also create Income generating asset from the investment of your time only.

Say for Example this Blog. This Blog is the Income generating asset created as a result of Investment of my time only. I have invested 6-8 hours a day since last 2 years behind this blog and today this blog provides passive income for me without much effort.

You can also invest your money and acquire the income producing assets such as Dividend Stocks, Mutual Funds, Rental Properties, Businesses…etc..

Why Smart people Invest for Income?

Well, This is because Investing for Income (Cashflow) means you are investing in those assets which provide you a steady cashflow. If you invest for the cashflow than you don’t have to worry about the daily ups and downs of that asset class.

Say for example, if you have invested in Dividend paying stocks than you don’t have to worry about the daily price fluctuations of that stock because even if the price of that stock goes down, you will still make a good income in the form of Dividends.

Another Example is – This Blog. I don’t have to worry about the daily ups and downs of the valuation of this Blog. This is because as long as I receive a cashflow from this web property every month, I don’t need to worry about its valuation.

And that’s why Rich people invest for the Cashflow.

Cashflow Versus Capital Gains Strategy -

Both the Investment strategies have their own pros & cons. Nothing is better than the other. If you invest for Capital Gains than the main advantage is the tax advantage. Unless you sell your assets, you will not have to pay any tax. This is really good.

But at the same time the main disadvantage of investing for capital gains is that, for the most of the time of your life, you won’t be able to enjoy this money because most if the time of your life, it will remain on paper only unless you sell whole of that asset.

While this is not a case of Cashflow Investing. Here you Invest for Income so you can enjoy that money for the whole of your life (However, you will have to pay on your realized Income).

I Personally like Investing for Income (Cashflow). This Blog is my Cashflow Investment and creating this blog my life changing financial decision because that day (March 2008), I chose investing for the Cashflow rather than the Capital Gains…!!!

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