Linked to this aspect is the basic truth of life wherein things are largely unpredictable as a whole. Herein, by making speculative investments, you would in fact only be magnifying the overall uncertainty that is already looming large in our lives. On the other hand, if you were to focus on investments which assure returns to a much greater extent, you would in fact be bringing in an element of definitiveness in a life which is otherwise rather capricious!
The state of the property market in the US today is a very good example of how depression in speculative investments can set in and then continue to languish, in a rather sticky manner. Few had predicted that the property boom in the US, back in 2005-2006 would soon lead to an unprecedented slump in the market a couple of years later and continue to remain in a rather depressed state, even till date. Many who had made investments at the time of the boom, assuming that property rates would continue to rise indefinitely, have only had to burn their fingers in later years.
On the other hand, those who invested in more stable avenues, such as small businesses, dividend stocks or rental properties have continued to reap reasonably rich rewards, even over the toughest years of the financial crisis. To a large extent, this state of affairs clearly showcases the fact that cash flow investments make a more intelligent investment choice than do speculative investment avenues.
The scale of operations of cash flow investments also seems to make a definitive difference as far as assured returns on investments are concerned. By and large (and there is nothing definite about this), smaller scale investments tend to offer consistent and more assured returns, even if the returns per se may be small. Instances abound in this regard, when we look at the sheer number of large companies, including major global investment banks such as Bear Sterns which simply went belly up, while most smaller companies, home based businesses as well as say mom and pop stores did survive the onslaught, many even going on to thrive in the aftermath of the financial whirlwind.
As an investor looking to invest in such small scale enterprises, a very important aspect to consider in this regard would be the aspect of spread, i.e. you should constantly look to spread your investments over diverse realms whereby your overall risk continues to get mitigated with each additional investment that is made. So for instance, if you invest on dividend stocks of a few small companies; then give out a few smaller properties on rent; and finally, also lay your bets on the prospects of the neighborhood mom and pop store by investing in the same, you would essentially be mitigating your overall risk to a great extent, while at the same time, ensuring that your returns on the whole only continue to increase phenomenally. This is perhaps the very essence of smart, cash flow investing whereby you have a reasonable spread of investment instruments, all generating cash flow for you in a big way, when taken in totality.
This kind of a spread of cash flow investments not only assures you of regular returns over a long term framework, it also ensures that your returns continue to rise substantially over the years. Take for instance the spread of rental properties that you might have at your disposal. Even if we take a minimalistic annual rise in rentals of say 4 – 5 per cent, you will eventually see a substantial rise in your income, year-on-year, given the fact that you have managed to build up a sizeable base of properties that are out there, accruing rental income for you.
Considering all of these aspects, choose wisely when it comes to speculative and cash flow investments. Many speculative investments may seem attractive at the outset, but the truth is that the speculation in their case is substantial. Instead, focus on cash flow investments and mitigate your risk by spreading your investments over numerous small-scale investments…that would be truly prudent investing at its very best!
