How do you know if an investment is profitable? The quickest and surest way to know is if it pays you. Preferably often and amply! We’re going to break away from our discussion of bonds to examine why…Cash flow is the truest measure of the success of an investment. Sometimes the best speculations might demand a period of years of waiting before a huge payoff comes, but this is always a much riskier speculation that you should have do enough homework to feel quite certain that it will come (or feel quite compelled that this is the place you should be investing what you steward.)
A must more predictable way to steward your wealth is to allocate it towards assets which will produce a steady and certain level of cash flow that you feel is sufficient for handing over your capital.
This cash flow can come in any number of ways and it’s important for you to understand exactly how, why, and when the company is expected to pay you.
Let’s look at a couple examples…
1) A private loan could stipulate that you will receive payments each month.
2) An investment in real estate might have a highly dependable cash flow from rent which could be expected.
3) A dividend paying stock certainly sends you cash.
4) Selling call options on a stock that you own is a more sophisticated way to generate cash flow from an asset.
There are many other forms of cash flow that might come to you as an investor. The questions for you as you analyze the opportunity that you are now looking at are…
1) Will you and if so How will you receive cash flow from this investment?
2) Is that cash flow stable, predictable, and dependable?
If these questions can be answered to your satisfaction, then you know your investment will pay you! And isn’t that a very primary reason why you’re investing in the first place?
But this is all theoretical on a blog, why is cash flow important in your life?
This is Part 20 in the series Investment Due Diligence. To use this as a growth tool to better understand your own calling, you might start by reading Part 1, Pt 2, Pt 3, Pt 4, Pt 5, Pt 6, Pt 7, Pt 8, Pt 9, Pt 10 , Pt 11, Pt 12, Pt 13, Pt 14, Pt 15, Pt 16, Pt 17, Pt 18, and Pt 19.