Let me ask you a question. You are given two investing opportunities, A and B, which differ in their returns.
- Investment A will give you 500k in total returns. The only condition is that you are not given any of those profits until the very end when the 10 years is up.
- Investment B will give you 350k in total returns. However, it will transfer the profits to your bank account every month for the 10 years.
Which one would you choose?
If you chose investment A, this guide is probably not for you. But if you chose investment B, this is precisely what I have been doing in all of my investments. My investment philosophy has always prioritised cash income rather than massive capital gains. I am such an extreme case of this that I don't even care what happens to the underlying asset's price, and I am willing to hold the asset even if it goes down in price as long as it regularly generates good enough cash income.
Why do I have such an extreme position on this matter? I do this because I swear by the Monthly Cashflow Analysis that I have discussed in the fundamentals guide.
- All my investments must pay me regular cash payments, either monthly or quarterly.
- When I get paid, it is considered just another income stream for the month when I receive it.
- When conducting the Monthly Cashflow Analysis, More income translates into more profits, which means increased free spending. It is vital for my family and me to feel that we are getting richer every month, even if we earn less than the other investment option that could have given us more total returns. Such frequent gratification allows us to stay motivated and be consistent over many years.
It's important to note that if you only compare the two options, A and B alone, A is superior in terms of total returns. However, the early cash payouts from B can be re-invested to something else, and we also have to look at the impacts of that. B results in faster turnover of investments and, therefore, the snowballing effect. If you consider all of these things, it becomes difficult to tell which option gives you more total returns over a long period of time. In fact, option B might net you more profits, in the end, depending on where the re-investing has been made and the re-investing of their profits have been made, so on and so forth.