Jeremy Roll: The Importance of Cash Flow Investing

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There is a common argument in the investment community between people that invest in lump sum payouts and those that focus on cash flow returns. I believe there are many reasons to concentrate on investments that produce cash flow on a monthly or quarterly basis.  Essentially, if your goal is to make passive income, cash flow should be your main goal. Cash flow investments provide interval returns, which is much more convenient when attempting to pay off expenses.  I asked Jeremy Roll, a full-time investor and co-founder of FIBI, to write some words  on the importance of cash flow in preparation for his upcoming seminar on the very topic:

“I have been a cash flow focused investor since 2002 and, after nearly a decade of cash flow investing, I have experienced the benefits of cash flow investing first-hand. For example, while the stock market was plummeting in 2008, my cash flow investments were on their usual schedule, paying on time and with the type of certainty that I knew I could count on. In essence, I could watch CNBC and hear about the day’s plummet while knowing that 10 minutes later I would fall asleep without great financial worries.

If this sounds too good to be true to you then I would highly recommend that you research cash flow investing further, as there are plenty of ways to invest for cash flow and I have nothing to sell you – except for a change of mindset. If you get advice from a typical financial analyst, you will usually get sold on stocks and bonds, both of which aren’t cash flow focused and have great uncertainty associated with them, many cash flow investors have learned that earning stable 10%+ returns in readily accessible cash that can have great tax advantages and that can be used to pay for living expenses and/or reinvest is not only a better path to take but can be much more lucrative than the historical long-run return of stocks and bonds (8% for the former, for example) and, in many cases, with equal or even less risk. As a Wharton MBA who knows many financial advisors, I can tell you that it’s a secret they don’t want you to know because, in most cases, their earnings are directly tied to how much of your money you let them hold. It’s also how the wealthy invest, as they clearly don’t simply “roll the dice on” stocks and bonds like the majority of Americans.

If you’re a relatively low-risk investor and a conservative person, like me, then you’ll probably appreciate some of the benefits of cash flow investing, as it allows you to:

  • Earn more predictable returns than the stock market (with equal or less risk in many cases)
  • Earn better returns than the stock market (with equal or less risk in many cases), resulting in a higher net worth for you and your family in the long-term
  • Better plan for your future by being able to predict your future returns with more certainty
  • Have access to your cash flow for living expenses and/or for reinvestment, allowing you to spend or reinvest without encroaching on your invested capital
  • Sleep better – or at least with less worries – during today’s economically volatile times!

Although cash flow investing is a key focus from my perspective, passive cash flow investing is a more specific approach that makes cash flow investing that much more interesting and worthy of consideration. In essence, many cash flow opportunities exist that allow investors to participate passively, which means that they are operated and/or managed by an experienced investor who earns a fee that is typically aligned with the investor in exchange for managing the opportunity. This type of approach results in an investor simply collecting cash flow from the opportunity, typically on a quarterly or even monthly basis, without any additional effort. This strategy synonymous with “hiring experienced investors” on your behalf and it’s the strategy that I have employed since 2002 with some luck and good success.

Passive cash flow investing is clearly not for everyone, as it involves handing over control to the operator/ real property management company, which some people are clearly not comfortable doing. It can also increase risk, as you’re now counting on an operator/manager and it’s imperative to find honest and capable operators/managers to work with (although these risks can be somewhat reduced by performing background checks and depending on the structure of the investment).

In summary, passive cash flow investing could open the door to a hands-off approach to earning cash flow for investors who don’t have the time to actively create the cash flow or for investors who simply prefer to hire experienced investors on their behalf, like me. It also presents the possibility of a more predictable financial future that allows you to sleep well thanks to less financial worries. If this sounds intriguing to you then you might want to take it upon yourself to investigate this method of investing in more detail, as I wouldn’t expect your financial advisor to make the recommendation to you anytime soon. Otherwise they might be out of a job!

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