GUEST COLUMNIST: Diversification key to investing for sustainable cash flow

Diversification is one of the widely spoken and mostly misunderstood concepts when it comes to investment. People diversify for many reasons, with primary of all being managing investment risks in case of one asset performing poorly.

Diversification could mean different things in different situations; it could be product diversification, market diversification, business model diversification, portfolio diversification, income diversification and business diversification.

But the main objective that cuts across, to many, is to ensure that the person diversifying is protected in case things go bad in the main source of income.

One of the strategies is to invest in assets that will create regular cash flow to the investor. There are tons of options in the world today that would allow to invest in assets for passive income, to give you regular cash flows for your regular and emergency needs.

Here are some of them;

Real estate

You can invest in real estate, not as a developer or agent, but investing and let the rental income flows from the property coming to you. You can invest in one property; you can invest in Real Estate Investment Trusts (REITs), or in a real estate crowdfunding platform.

You can invest within the country or look for offshore markets where the country’s laws allow.

This will give regular monthly, or quarterly or annual income for as long as you own the property.

Royalty financing

This is the opposite of traditional VC investment model where you invest in a company, takes some share ownership, and get your returns through dividends and selling your shares when exiting the business and make X amount of your initial investment.

With royalty financing model, you invest in a company, say a start-up, and be entitled for a revenue on monthly basis for a period until you recoup your investment and a return, as agreed with the company owner.

Peer to peer lending

Lending money is not a boy’s play, it’s a tough business and very risky, but technology has changed the industry and made lending more easier, and accessible to anyone.

You can start to lend to small businesses via P2P (Peer-to-Peer) lending platforms such as KIVA, and get repaid without moving an inch. The platform does the hard work, and you invest by lending to small businesses, that are vetted and listed on the platform.

Dividend stock

This is for individuals who are okay to receive their dividend cheque at least once a year. With this approach, you buy shares/stocks that pay dividends, and depending on the amount and value of stocks you own, you will be getting your income annually. But you should understand that for you to get a cheque that makes sense, you must invest a reasonable amount, especially for publicly traded stocks. But just make sure that you diversify your stocks well by mixing between high growth stocks, stable stocks, and across geographies.

But you can also do this for private companies (companies not listed on the stock exchange), and get dividends every year. This could be easier but more risky.

Fixed income securities

Fixed income securities are type of investments where the income you get is fixed throughout the investment period, these include fixed deposits, treasury bills, treasury bonds, corporate bonds, SUKUK, etc.

Depending on your needs and financial objectives, you can invest in securities that mature in 30 days, 90 days. 180 days, 360 days, or more.

Salum Awadh is a CEO of SSC Capital, a corporate advisory and investment management firm.