The Best Investments for Cash Flow – A Steady Income Stream
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Generating positive cash flow is the goal of several passive investments to ensure consistent cash flow over the years. The fundamental way to build wealth is to have a different approach to money. If you want to retire wealthy or have a consistent, steady flow of income, you need to consider passive income. It is a stream where money is generated without you having to work for it.
You can earn cash flow from many sources, requiring minimal effort and time to reap the benefits. If you are not afraid of a bit of investment of money or time, then here are the top investments that will generate regular cash flow for you.
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In this article
Overview of the best investments for cash flow
Investment | Best For |
Dividend-paying stocks | Income and capital appreciation |
Certificate of Deposit | Short-term investors |
Money market accounts | Low-risk investors |
Real estate | Long-term |
REITs | Risk-averse investors |
Peer-to-peer loans | Short-term |
Real estate crowdfunding | Low-risk, consistent income |
Bonds | Investors closer to retirement |
Mutual funds | Diversification |
Retirement accounts | Long-term goals |
Exchange-Traded Funds | Solid returns |
High-Yield Savings Accounts | Low-risk investors |
Royalties | Unconventional investors |
Bond Funds | Steady income at low risk |
Annuity | Ideal for retirement goals |
Affiliate marketing | Investors with social media following |
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Best investments for cash flow
Dividend stocks
The stock market is a great place to make money and if you are looking for stocks to invest in, pick dividend stocks. You may not see explosive price appreciation with dividend-paying stocks like pure growth stocks, but they offer reliable, consistent returns. Due to these returns, they enjoy high price stability while providing a regular cash flow. Several dividend stocks also provide capital appreciation for dividends, which can be a smart investment option.
You get the benefit of price appreciation and a stable cash flow. Choose stocks that have a dividend yield higher than 1%. The advantage of owning dividend stocks over a bond is that dividend payments can increase over time and are not fixed. Johnson & Johnson, AT&T, Coca-Cola, Microsoft, Apple, and Procter & Gamble are a few examples of dividend aristocrats.
Related: Assets That Appreciate in Value
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Certificates of Deposit
A certificate of deposit is a savings account that will hold your money for a specific period. The money remains safe in the FDIC-backed account, and you earn interest on it. Remember to compare the interest rates before you choose one. If you want to invest your money for the short term, consider buying short-term CDs and continue reinvesting them if the rates increase. It is a safe investment and allows you to enjoy stable cash flow. When you hold the CD for the entire term, you will earn interest for the term, but if you remove the funds early, you will lose the interest and pay a penalty.
Money market accounts
A money market account works like a savings account. The interest rate on the account is higher, and you need a higher minimum deposit. It also allows you to withdraw and spend cash when you need to. But there is a limit on the monthly withdrawals. The account is FDIC protected, which makes it completely safe.
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Related: Best Money Market Accounts
Real estate
With real estate, you need to consider the one that produces rental income. Owning a home is an investment, but you will only enjoy capital appreciation from it. You can rent the home to tenants and generate cash flow with investment property. Ensure that the rent covers the mortgage payment and taxes, and learn how to calculate ROI on rental property. As rent increases over the years, the property will produce a positive cash flow. That said, you will also continue to benefit from capital appreciation. Once you have paid the mortgage, you can keep or sell the property. Rental property is the best investment to generate passive income.
Real estate assets have the potential to drive your net worth higher over the years since the properties appreciate and the rent also increases. It also comes with several tax benefits, and if you are not keen on having full-time tenants, you can rent the property for the short term on Airbnb. However, the property is illiquid, so only invest in them if you are willing to hold it for a few years. If you only want to diversify the portfolio, consider real estate investment trusts (next).
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Real Estate Investment Trusts (REITs)
If you want to invest in real estate but do not have the time or money to maintain one or more properties, you can consider investing in real estate investment trusts (REITs). It works like a mutual fund that invests in real estate. They invest in office buildings, large apartment complexes, retail centers, medical facilities, and more. The REIT will distribute net income from the trust in dividends, but you will also get to make the most of the capital appreciation once the trust sells the property. Commercial property is a great way to make the most of real estate, and REIT is the best way to get started. You can buy and sell the shares in these trusts through major brokerage firms.
There are public REITs and private REITs. The public REITs are publicly traded just like ETFs or stocks, which means they are more volatile but pay out 90% of the profit in dividends. They are also more in line with the stock markets than other real estate investments. On the other hand, private REITs are privately owned funds, and they usually invest in commercial real estate. They do not offer much liquidity and are ideal for the long term. Private REITs are a great option if you do not mind leaving your money in a REIT for five years or longer.
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Peer-to-Peer loans
is a good way to enjoy high returns on investment by making loans to the borrowers directly. The lenders make personal loans available to the customers for different purposes, and they collect monthly payments and pay the investors in those loans. You do not need a large amount of money to purchase the loan. Instead, you can buy slices of loans that are known as notes.
They can be purchased for as low as $25, and you can spread your investment across different notes to reduce the risk. Since you are a direct lender to the customers, the rate of return on the investment is higher than you will get through traditional investments. You can consider lending platforms like Lending Club and to invest.
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Real estate crowdfunding
Another way to invest in real estate is through real estate crowdfunding, but it is much more specialized. Through companies like Fundrise, you get investment opportunities in specific real estate investments. It is an opportunity to invest in specialized properties that can generate higher returns as income-producing assets, but you do not want to own them yourself.
You invest in a fund, and within the fund, either raw land is bought and developed, or existing properties are purchased, developed, and sold for a profit. Several crowdfunding websites allow accredited and nonaccredited investors to participate. The biggest advantage is that the loans are short term so you do not need to commit many years like you would with other real estate investments.
Bonds
A classic asset, bonds can pay out regular interest payments until maturity, and this is when you get the initial money back. A bond is nothing but a loan from you to a borrower, and you can sell it on the secondary market. Governments as well as corporations issue bonds to raise money for projects. Some government bonds also come with tax benefits. Bonds are an attractive investment for retirees. Since they have low risk and a specific rate of interest, they can work as a good strategy to reduce risk through asset allocation, and you can hold them in your investment accounts until maturity.
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Mutual funds
If you are keen on investing in the stock market but have no knowledge about picking stocks, you can consider investing in mutual funds. It is nothing but a pool of stocks managed by professionals. You put your money in a fund, which will invest in different securities. You can find industry-specific index funds and take your pick. The rate of return on the fund will be market-dependent, but there is low risk and a high potential for generating regular cash flow.
Retirement accounts
You can put your money to work by opening an IRA. It offers tax benefits and is an opportunity to make the most of the power of compounding. Consider a if you want to grow your money. It has historically delivered between 7% to 10% average returns annually. You are free to invest in stocks, bonds, or any other assets, and how the money grows will depend on the type of investment you make. There is an annual limit to your contribution to IRA, and putting the maximum amount will help prepare for retirement.
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Exchange-Traded Funds (ETFs)
If you are a beginner, investing in ETFs is a great way to generate cash flow. You can pick an ETF that invests in the top dividend-paying stocks and enjoy the return over the tenure. It helps reduce the risk in the stock portfolio and will ensure that you do not over-invest in a single company. There are several ETFs you can choose from. It is a professionally managed fund that offers high liquidity and diversification.
Related: Best ETFs
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High-yield savings accounts
Savings accounts are a good choice if you are nearing retirement and want to make a low-risk investment. It offers consistent returns, and you can easily find high-yield options. Remember to compare the rates and shop around before making decisions. With a high-yield savings account, there is no risk of losing your money. The account will be insured for up to $250,000 by the government for every account type per bank.
Related: Best High-Yield Savings Accounts
Royalties
An unconventional way of generating cash flow, you can buy royalties and enjoy a consistent income. It is one of the lesser-known investment options because only a few people know it. Instead of investing in property or security, you get to invest in licensing arrangements where you can participate in the revenues that are generated through a range of ventures, including videos, music, mineral rights, oil and gas, and venture capital financing deals. When you invest in the venture or product which the product creator or original investor sells off, you get to earn royalty income on the investment. Before proceeding, remember that every deal is unique and look through the terms of arrangement because they vary with each product.
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Bond funds
Bond funds are a great way to invest in bonds to enjoy high diversification. Intermediate bond funds are a good choice if you want to enjoy income investment. You will enjoy a higher interest rate than that the banks or treasury securities offer. Intermediate bond funds do carry some level of risk, but they are more stable than long-term bonds. They have a maturity of fewer than 10 years and are less sensitive to the interest rate changes that might lower the market value of the bonds in the long term.
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Annuities
If you are a risk-averse investor, will be a part of your investment strategy. It pays out a certain amount of money each month and serves as a solid retirement income. When you buy an annuity, in most cases, you need to wait for a few years to start receiving the regular annuity income. If you purchase an immediate annuity, the payments will begin immediately. But annuities are complex financial products, and you should review them carefully before you buy, or you could seek the help of a financial advisor before making a decision. You should view them as long-term financial products that are safe and steady.
Affiliate marketing
It is possible to generate a steady cash flow with affiliate marketing. If you have a good online presence, you can consider this approach. It is like running a retail shop, simply sign up with the top retailers that use affiliate marketing to promote their products and use your social media apps or blog to make money. Even if you do not have a blog, you can earn a commission through social media apps. As you grow the retailer’s sales, you can increase your commission.
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Summary of the best investments for cash flow
Investment | Risks | Returns |
Dividend-paying stocks | Moderate | Variable |
Certificate of Deposit | Low | Fixed |
Money market accounts | Low | Fixed |
Real estate | Low | Variable |
REITs | High | Variable |
Peer-to-peer loans | High | Fixed |
Real estate crowdfunding | Moderate | Variable |
Bonds | Low | Fixed |
Mutual funds | Moderate | Variable |
Retirement accounts | Moderate | Variable |
Exchange-Traded Funds | High | Variable |
High-Yield Savings Accounts | Low | Fixed |
Royalties | Moderate | Variable |
Bond Funds | Low | Fixed |
Annuity | Low | Fixed |
Affiliate marketing | Moderate | Variable |
FAQs
Which investment will generate the highest cash flow?
It is hard to pick a particular investment that will consistently generate the highest cash flow since a lot depends on external factors like the market and the economic policies. However, real estate, held directly or indirectly, can generate returns for you. REITs are low-cost investments that have shown solid historical returns, but you must keep in mind that there is no guarantee of returns.
Where should I invest for my 401(k)?
If you are thinking about 401(k) investments, you must consider factors like risk, age, and your time to retirement. When starting, invest aggressively and then gradually move towards less risky investments as you inch closer to retirement. The safest investments are bonds and high yield savings accounts.
Which is a good investment for beginners?
You do not want to take high risks if you are just starting. So, you should consider certificate of deposits, a high yield savings account, and retirement plans.
The bottom line
This list is far from exhaustive.
To be on top of your personal finance goals, you need to consider the alternative investments that will generate wealth in the long term. Try to diversify your investment and build a solid portfolio that can weather inflation.
There are several ways you can generate cash flow, but you need to consider your goals, investment criteria, and risk appetite when choosing an investment product. Traditionally, money market accounts, high yield savings accounts, and certificates of deposit are cash flow sources. Still, since they barely keep pace with inflation, you need to consider other alternatives.
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Vandita Jadeja is a financial writer and editor at Joywallet. She loves to read and write about money and brings a decade of experience from the financial industry.
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