(Sam Swenson, CFA, CPA)
When it comes to success long term investmentIt’s good to focus on it full back: Combine price hikes and dividends. However, there are times when you might consider optimizing your cash flow instead. If you have upcoming liabilities that cannot be covered by your job income alone — such as an unexpected medical emergency or a larger-than-expected tax bill — you may want to consider investments that can help offset the cash shortfall.
Below, we’ll briefly review four strategies for getting more money.
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Focus on the profit payers
Many stocks are known across the investing world for their ability to generate cash, and in many cases even to increase their dividends. Here, I refer to companies like AT&TAnd the AbviAnd the Kinder Morgan – Among other things stock value. But others, usually growth stocks In technology, you pay no dividends and rely on price estimation alone to provide returns.
While dividend-paying stocks can provide cash flow of 4% to 6% annually, you will also need to focus on quality companies if you choose to go this route. A stock that pays a dividend of 5% but experiences sharp price swings may leave you with an overall negative net return. So you’ll need to be particularly clear about why you’re optimizing cash flow and have a strong thesis behind any individual stock you buy.
Use a taxable account
One advantage of taxable brokerage accounts is that, unlike 401(k)s or IRAs, you can easily access the money when you want it and at any age. If you’re looking to raise money by selling existing investments, doing so in a taxable account is likely to generate more net interest – especially if you’ve held the investments for longer than a year (it will be long-term capital gains, which are taxed at higher rates low). If you withdraw money from a 401(k) or pre-tax IRA, you will pay ordinary income tax Plus Early withdrawal penalty if you are under the age of 59 and a half.
This doesn’t mean you shouldn’t use a 401(k) or IRA; In fact, the opposite is true. Both 401(k)s and IRAs can be particularly powerful tools from a tax deferral and compound growth perspective. However, make sure you have a taxable brokerage account for easily accessible investments, while at the same time doing your best to maximize both your 401(k) and your IRA each year.
Determine dividends on cash
If you own dividend-paying shares, make sure you turn on the account setting that allows dividends to appear like this Cash in your account. If you don’t, you will simply reinvest the dividend into the company (or companies) that paid it out, increasing your equity stakes but not actually making the cash available to you. Although this does not increase the amount of earnings you receive in the end, it does allow you to cash on a recurring schedule.
stop for a moment
Before investing a lot of money in Stock marketMake sure you have enough cash on hand to cover upcoming obligations. As we’ve seen this year, markets can crash quickly – for any reason at all. If you’re worried about running your entire nest egg, take a moment and think about how much you’re willing to lose in the short term if the markets turn south. Simply hanging on your money and Not Investing can be a viable way to maintain easy access to cash.
Criticism is still king
In the end, you need cash to pay the expenses. Investing your money in 401(k) and IRAs is a great strategy for the retirement Savings, although that money won’t help much with your rent or mortgage due next month (unless you’re already retired). To extract more money from your investments, focus on dividend-paying stocks, limit dividends to cash, and stop investing all of your money before you have a big cash cushion.
A few small adjustments to your portfolio can go a long way in reducing anxiety about daily market movements. Pay attention to your regular commitments and ensure that cash flow from all sources aligns with all of these commitments.
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