For many investors an important aspect of managing their portfolio is generating monthly income also known as cash flow.
Cash flow is the payment frequency of income from an investment. This income is paid regularly for example; monthly, quarterly, biannually or annually but can be inconsistent, particularly for longer term investments. Cash flow differs from the total income return, in that it examines how often and when income is paid, rather than the actual level of income received from the investment over a set period.
Here are just a couple of reasons why cash flow is so important to investors:
1. It is fundamental for having an effective personal financial budget
While you may be receiving income from an investment, if the income doesn’t arrive regularly enough to meet living expenses, you may need to access cash from other sources to bridge the gap, which is a position that most savvy investors would like to avoid.
2. Having uneven cash flow makes accelerated debt repayment a difficult goal to achieve
Due to the high initial costs involved, many people go into debt to purchase items such as cars. However, this debt comes at a price. While you are carrying that debt, you cannot use these funds to invest elsewhere. Therefore, it makes financial sense to reduce lifestyle debt as quickly as possible so that these funds can be used to invest in financial assets that are likely to appreciate in value to create wealth.
With those points in mind, how can you achieve stable and regular cash flow?
Consider cash flow diversification. Diversification is not limited to your choice of investment asset type. It is wise to consider diversification from a cash flow perspective as well. By having a sufficient mix of underlying assets within your portfolio you can help ensure you receive a relatively even income throughout the year. While some investments may look similar at first glance, a prime differentiator between them may be the frequency of dividend or distribution payments and the terms on which they are paid.
We encourage investors to speak with a licensed financial adviser for further guidance on how to manage their investment cash flow to meet their personal requirements.
If you would like to learn more about generating monthly income with Trilogy, check out current investment offerings.
This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425 as responsible entity for the managed investment schemes mentioned in this article. This advice is general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.