Cash Flowing Assets: What are they and why should I care?

Rational investors always seek to place their funds in assets they believe will deliver the best risk-adjusted returns, based on their individual risk tolerances and investment goals. Investments can generally be divided into two broad categories: cash-flowing assets and non-cash-flowing assets. Non-cash-flowing assets are exactly what they sound like, investments made with the goal of growing your equity stake, with the expectation of exiting at a higher value than your initial purchase. While this is an important consideration for any portfolio, today’s discussion will focus on the other side, cash-flowing assets.

Cash-flowing assets, in simple terms, are investments that require an initial capital outlay, with the understanding that a portion of your principal will be paid back periodically based on the performance of the investment. These payments can take many forms, including interest, dividends, or operating income, among others. With this foundational concept in mind, let us examine a few examples of cash-flowing assets and explore how they function in practice.

Best Assets that Produce Cash Flow and How They Operate

Stock dividends are a common example of a cash-flowing asset, as publicly traded stocks typically pay out dividends to investors. Stocks are particularly interesting because they also have a non-cash-flow aspect, given the potential for stock prices to appreciate over time. In this discussion, we are focusing on the dividends associated with stock ownership, as these payments can become significant as you build a strong stock portfolio.

Operating income may be the most widely understood form of a cash-flowing asset. Simply put, operating income is the revenue earned through a business’s daily operations. This revenue can be captured through business ownership or by being a private equity investor in a business where you receive a portion of the income based on your investment share. The stability and strength of these investments can vary greatly, as business ownership is complex and offers the potential for both substantial returns and losses. Private lending is another form of a cash-flowing asset that can strengthen any portfolio.

Private lending is often associated with real estate, such as Ignite Funding’s trust deed investments, but it can extend to any asset class that requires debt. In the case of Ignite Funding’s investment options, these opportunities allow investors to receive a relatively stable and predictable monthly income stream, providing reliable cash flow to an investment portfolio.

Investing in Cash Flow - How do I start?

Now that we understand a few of the main cash-flowing assets that exist in the market, you may still be saying, “That’s great, but how do I get started?” While this is a simple question on the surface, it is very important to ask when getting started, as no two investments are created equal. Investments can have significantly different barriers to entry, and not all investments are suitable for all investors. Stocks are the simplest option, as they can typically be bought and sold in any desired quantity. Additionally, opening a brokerage account can be free with the right brokerage, depending on an investor’s needs. Being a business owner or a business equity partner typically has a much higher barrier to entry and is generally reserved for those who are highly capitalized. Private lending usually has a higher barrier to entry than stocks but can be more approachable for the typical investor than a business ownership or private equity investment. For example, Ignite Funding offers the option to invest in cash-flowing assets collateralized by real estate with a minimum investment of a few thousand dollars.

Conclusion

In conclusion, when building a portfolio, it is essential to consider your investment goals and risk tolerance, as these factors guide which assets are most suitable for you. While non-cash-flowing assets focus on long-term appreciation, cash-flowing assets provide the advantage of generating regular income through dividends, operating income, or private lending opportunities. These types of investments can complement your portfolio by offering predictable returns and enhancing financial stability, and they are accessible at different levels depending on the investor, from publicly traded stocks to private lending through platforms such as Ignite Funding. By understanding the variety of cash-flowing assets and the barriers to entry for each, investors can make informed decisions that align with their financial objectives, making cash-flowing investments a powerful tool for both new and experienced investors seeking consistent income and portfolio diversification.