How can investing increase your cash flow?

What is the best investment option for me? Where can I see the most significant returns on investment? Am I ready to start investing? These are just some questions on the lips of thousands of people across the UK looking to increase their cash flow options.

As we all know, 2020 has been a tumultuous year for a number of reasons. As worries around finances continue to dominate the business and personal finance headlines, people across the UK are wondering how can they increase their cash flow, especially when times are tough. While there a number of options available to increase cash flow, this article looks at how investing can be a viable option.

Investment options:

Potential investors in the UK are spoilt for choice with the number of investment opportunities and products that are available at varying price points. Each product or investment avenue have their own advantages, disadvantages, risks and most importantly, the potential returns on offer.

Investment Trusts and Investment Funds

Investment trusts and funds are at the cornerstone of investments for a range of investors in the UK financial sector. Both work on collectively ‘pooling’ capital provided by investors in the pursuit of a diverse range of returns by providing their investors with exposure to a series of wide-reaching assets.

Although there are similarities between the two, investment trusts and investment funds, provide different or unique opportunities. As investment trusts are close-ended, they provide investors or shareholders with long-term investment plans and returns. In comparison, investment funds are open-ended and can give investors faster returns.

It is essential to highlight that both investment trusts and funds work in line with the stock exchange, so the returns you may receive may rise or fall in line with market trends.

Stocks and Shares ISA’s

Stocks and shares investments are one of the most attractive investment opportunities available in the UK. This is for a number of reasons:

Stocks and Shares ISAs are a good investment because they are extremely tax-efficient – if you keep your ISA contribution with the tax-free limit, you will not need to pay any taxes. Secondly, stocks and shares ISAs are extremely flexible and are a fantastic choice to start your investment journey.

What form of returns can you expect?

While the art of investing has been glamourised by the millions of dollars character’s on films seem to make, investing in the real world see’s investors able to gain a steady and relatively reliable income from a reasonably small investment.

The returns an investor will seek will depend on what their overall goal or investment strategy is. Investors can see a range of return or payment methods across a single investment portfolio, including, income-like payments, interest payments, or capital gains.

Interest payments

One of the more secure forms of returns an investor can pursue are interest payments from simple investments as continued contributions to saving accounts or more complex investment types as fixed-rate bond investments. With these types of investments, investors will know exactly how much money you can receive from your investment.

Dividends

Some stocks pay growth dividends, which in short gives the investor a share of what the company makes. Acting in a similar vein to a ‘regular income’, investors can expect to see payments in defined dates during the year. The amount you can receive from a dividend depends on how well the company did that year, and the amount of stock you own.

It is important to note dividend payments are usually used by companies as a goodwill gesture in an attempt to increase investment year on year from their shareholders.

Capital gain

Capital gain from an investment is often available from one form of action. Capital gains will arise when an investor sells their stake in a company, bond, or their position in a fund, for more than they paid. If your investment portfolio is based solely around this form of return, you will naturally see a higher rate of risk.

As mentioned, while the returns an investor will seek is dependent on their goal or investment strategy, a healthy portfolio will look to see returns across these three formats. Although this will more than likely come naturally if you have a diversified range of assets, investors should be aware of where their returns will come from if the market is performing poorly.