Having multiple sources of income can be beneficial for you in many ways. This is especially true if you have a business. Going straight to the point, this article will help you understand the value of multiple income streams. Upon knowing them, you’ll learn several ways to diversify your financial portfolio. This way, you can have money to expand your business. Plus, if you’re prudent, you’ll have extra money in your pocket.
Why Diversification Is Important
Having a diversified source of income can help you have a better way of providing capital for your business. With prices of commodities continuing to rise, you will still be able to buy things your business needs. You will be able to afford to increase employee costs. Most importantly, you will have funds for business expansion.
Financially speaking, having multiple sources of income can help you have a safety net. In case you lose one of your sources of income, you still have another to rely on. This will help you stop worrying about your future. According to Entrepreneur magazine, it will allow you to take advantage of opportunities otherwise unavailable if you didn’t have the money. Simply put, a diversified income portfolio can protect you and your business financially.
To diversify your income stream, here are several sources you can explore.
Mutual Funds
If you know a company and its products, it’s best to consider investing in them. It’s one of the most popular strategies for investing. With it, you get to invest in several trusted companies. This is what mutual fund companies offer.
Mutual fund companies pool your money with other investors. They use it to buy a collection of securities or assets. This may include money market instruments, bonds, and stocks.
You can also invest in real estate investment trusts, exchange-traded funds, and commodities with mutual funds. It’s an easy way of diversifying portfolios by allowing you to purchase a collection of assets in just a single fund.
Assets you can buy in a mutual fund are professionally managed by fund managers. With mutual fund investment, you get to access funds handled by professionals.
Private Equity
Like mutual funds, private equity is a collection of assets that are not publicly listed in the stock market. It is an alternative asset that is commonly used to finance private companies. As an investor, you purchase a private company with equity securities and debt. You don’t get to buy an entire company. You restructure it by simply gaining an ownership stake through a limited partnership.
Considering the complexity of private equity funds, it’s best to consult with the experts. A fund manager can work with a private equity marketing company to learn which companies are looking for private investors. Take note of this before investing in private equity funds.
Asset Allocation
Asset allocation funds are a mix of securities that are predetermined according to the percentage of each asset. It is an investment strategy that analyzes the risk versus the rewards involved. The percentage of each asset is determined based on your goals. It considers your risk tolerance.
In some cases, asset allocation can be based on an investment time frame. This is called target-date funds. Fund managers diversify, adjust, and re-balance your investment according to a time frame that you will provide.
Index Funds
Another option to consider is investing in index funds. Index funds are mutual funds or exchange-traded funds featuring assets that track indexes. It monitors broad indexes and matches their performance to reflect the value of the index markets.
For example, a list of the top 100 companies in the US has become available. An index for this list will track the performance of the companies as a whole. This index becomes the index market. You invest in the entire market instead of buying stocks from only one of the companies included.
Investing in index funds is a long-term investment that lessens the risks involved in cases of market uncertainty.
The secret to having a diversified income stream for your business is to have variety. Don’t focus on the quantity. Just because you invested in many companies doesn’t mean your income is diversified. What you need is different kinds of investments. Investing in each kind will bring different kinds of benefits for your business.
Cash offers stability and security. Investments in the global market give you buying power should you need to buy supplies abroad. Real estate funds provide you with protection when stocks rise and fall. Bonds, meanwhile, increases business revenue. Finally, stocks make your income grow.
