4 Strategies to Try if You Need Extra Cash From Your Investments

When it comes to successful long-term investments, it’s a good idea to focus on total return: the combination of price appreciation and dividend payments. However, there are times when you might think about optimizing cash flow. If you have upcoming obligations that your job income alone can’t cover, such as an unexpected medical emergency or a larger-than-expected tax bill, you may want to look into investments that can help offset cash shortages.

Below, we’ll briefly review four strategies for accessing a little more cash.

Focus on dividend payers

Many stocks throughout the investment universe are known for their ability to generate cash and, in many cases, even increase their dividends. Here I am referring to companies like AT&T, AbbVieY Kinder Morgan — among other value stocks. But others, usually growth stocks in the tech space, pay no dividends and rely solely on price appreciation to generate returns.

While dividend-paying stocks can offer cash flow in the range of 4% to 6% per year, you’ll also need to focus on quality companies if you choose to go down this path. A stock that pays a 5% dividend but experiences wild price swings could leave you with a negative net return overall. So you’ll need to be especially clear about why you’re optimizing for cash flow and have a strong thesis behind any individual stock you buy.

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Use a taxable account

One of the advantages of taxable brokerage accounts is that, unlike 401(k)s or IRAs, you can easily access money whenever you want and at any age. If you’re looking to raise cash by selling existing investments, doing so in a taxable account is likely to yield a higher net profit, especially if you’ve held the investments for more than a year (capital gains will be long-term, taxed at higher rates). low). If you withdraw money from an IRA on a 401(k) or pre-tax basis, you’ll pay regular income tax plus an early withdrawal penalty if you are under age 59½.

This doesn’t mean you shouldn’t use a 401(k) or IRA; In fact, just the opposite is true. Both 401(k)s and IRAs can be particularly powerful tools from a tax deferral and compound growth perspective. That said, make sure you have an easier-to-access, taxable brokerage account for investments, while also doing everything you can to maximize both your 401(k) and IRA each year.

Establish cash dividends

If you own stocks that pay dividends, make sure you have the account settings enabled that allow dividends to appear as cash in your account. If you don’t do this, you’ll simply reinvest the dividends in the company (or companies) that paid them, increasing your stock holdings but not making cash available to you. While this doesn’t increase the amount of the dividend you ultimately receive, it does make cash available to you on a recurring schedule.

pause for a moment

Before you invest too much money in the stock market, make sure you have enough cash on hand to cover upcoming obligations. As we have seen this year, markets can and do fall quickly, for whatever reason. If you’re eager to put all your savings to work, take a moment to pause and consider how much you’re willing to lose in the short term if markets turn further south. Just holding on to your money and No Investing can be a viable way to maintain immediate access to cash.

Cash really is still king

In the end, you need cash to pay for expenses. Investing your money in 401(k)s and IRAs is a great strategy for retirement savings, though that money won’t help much with your rent or mortgage payment due next month (unless you’re already retired). . To get a little more cash out of your investments, focus on dividend-paying stocks, lock in cash dividends, and avoid investing all of your money before you have a sizeable cash cushion.

A few small adjustments to your portfolio can go a long way in reducing anxiety around daily market movements. Pay attention to your regular obligations and make sure cash flow from all sources lines up to meet all of them.

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