One of my investment mentors once told me, "If you are not creating cash flow from your investments, you are not investing, you are just playing a game."
Imagine buying an investment property without wanting to rent it out.
The thought of that is crazy.
What does cash flow mean? As the name suggests, it means real cash coming from your investments.
As I said, you could think of it like rental income coming from your property.
In this article, I am going to share with you what are the 3 ways to create passive cash flow from your stock investments and which is my favorite.
Cash Flow #1 - Dividends
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This is probably the most common method of creating cash flow that most investors know about.
Dividends are a sum of money paid by the company to the shareholders.
Most beginner investors will prefer investing in dividend-paying companies because they are typically mature companies such as Coca Cola, AT&T, 3M, etc.
These companies' business models are easy to understand.
However, it is important to assess the sustainability of dividend payments from these investments.
However, I rarely invest in dividend stocks now due to my personal financial goals. I explained this in another post.
Cash Flow #2 - Share Lending Programs
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I rarely do this, but this is another way to receive cash flow from your investments.
Some brokerage allows you to lend out your shares and in exchange pays you an income.
You might be wondering who are you lending the shares to?
These shares are loaned to short-sellers of the stock.
Short-sellers have to pay a borrowing fee when they short a stock, and a portion of this borrowing fee will go to you as a lender. The remaining borrowing fee will go to the brokerage for facilitating this transaction.
"Short-selling, is when an investor borrows shares and immediately sells them, hoping he or she can scoop them up later at a lower price, return them to the lender and pocket the difference." as defined in marketwatch.com
Cash Flow #3 - Selling Options
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This is my favorite way of creating passive cash flow from my investments. With options, I am able to generate cash flow weekly, monthly or even yearly.
I usually sell options on either a weekly or monthly basis. With selling options, I am able to generate 1% - 2% on my investment every month. There is an element of risk in selling options for beginners who do not know how options work.
If you are interested, you can refer to this video on selling put options
So these are the three ways you can create cash flow from your stock investments! Personally, I really love selling options to create cash flow, because you get paid while waiting to buy stocks at the price you want. You will understand this better after watching the video.
Leave a comment down below to let me know which is your favorite!