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?
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I have 20% of my investment money in a high dividend paying mutual fund. The bulk of my assets are in farm land but the return is low and only produces 20% of my income. In other words, 20% of my net worth produces 80% of my income. Some is in bonds but the real income producer is a mutual fund paying 13% a month. I buy more of it each month with my cash flow. I pay nothing in transaction fees and no account fees. I don’t want or need someone to manage my money. It only takes a few minutes a month now that I have things on “autopilot”. I only use credit cards for the cash back feature and I get interest on my checking account. I don’t have anything that won’t be paid off in 30 days.
Start saving early. Don’t pay fees. Reinvest your returns. Don’t buy what you can’t pay cash for. Become truly free.
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