When it comes to investing, words and definitions matter. If you don’t understand the question in the title of this article, then you might be easily fooled by a fast talking financial salesperson, or you may pass up an outstanding opportunity because of your lack of knowledge. If you are confused by the terms in the article, stick around, by the end of this article, you will have a good idea of the difference between cash flow type investment and a capital gain type investment.
The basic definitions are simple enough:
This is a very, very simplified description of the different between cash flow and capital gain investing, and you can read any number of books that go into the details. Depending on what kind of investing you are doing, you probably have to have a completely different approach depending on which kind you are doing.
The key to remember is that any type of investment vehicle may include both cash flow and capital gains. Whether one type or another is best for you depends on the investment and a variety of other factors, including your near term and long term needs for a return on your investment.
For example, if you are investing in a company that specializes in advertising on radio, if you purchased the company and intend to keep it for several decades, you may want to do so only if it is a cash flow type investment so that you can pay the employees and other overhead costs. If you think that radio will be a dead medium in five years, you may want to take a capital gains approach and position to sell the company quickly, and profitably.
Tags: capital, cash, flow, gain