Multiple streams of income post-COVID-19

THIS column has always been a strong advocate of investment portfolio diversification and creation of multiple streams of income. Several articles have been published discussing these important topics. However, the recent lockdown and its unpleasant consequences have brought the need for the creation of multiple streams of income to the fore; both for individuals and businesses. Many people and businesses had their primary sources of income threatened or even wiped out. While it is true that we may never face another “black swan” event like this lockdown again in our generation, the economic uncertainty, job losses and reduced purchasing power makes it crucial for everyone, individuals and corporate organisations, to cultivate viable multiple streams of income that can help them tide of times of financial distress.

The first step would be to secure our primary sources of income. What can be done to secure our jobs? How can we make ourselves important to our employer such that no matter how bad things get, we could never be considered for retrenchment? What new skills, which leadership traits, what marketing/ business development prowess, do we need to make ourselves invaluable? It is only after securing our primary source of income, that we can effectively create additional sources. It is unwise to divert the energy from our main occupation into smaller streams that do not have the ability to generate as much income as the primary source.

In creating additional sources of income, we should be focusing on passive income. Income streams are either active or passive. Active income is earned through actively working and spending time and energy in order to be rewarded for your service. If you do not work, you cannot earn active income. We earn that from our salaried employment or business. Passive income on the other hand, does not require additional investment of time and energy after the initiating processes.

Some may think, they can manage a second stream of active income. However, now is not the time to start a new business, trade, or side hustle. Every new business goes through difficulty in the early stages, when the entrepreneur is just trying to develop and learn about the product cycle, customer behaviour, market dynamics and the response of competition. Positive return on investment may not come for months. Therefore, it is better to keep our money out of experiments at this time and ensure we invest only in well proven streams of income. We must safeguard our savings. Last week, we discussed a “flight to safety”. Investing in money market instruments would create additional and safe streams of income. But the rates of return are low and unattractive to the more adventurous investor.

New investments vehicles have evolved that are proving safe, generating good returns, and creating multiple streams of income. But we must always remember to exercise due diligence on these However, now is not the time to start a new business, trade, or side hustle. Every new business goes through difficulty in the early stages when the entrepreneur is just trying to develop and learn about the product cycle, customer behaviour, market dynamics and the response of competition. Invest in products with good verifiable track records. Investigate the managers of the product; their qualifications, experience, ethics, corporate governance and even their personal lifestyle outside the business. The two most common alternative investments are peer-to-peer lending (P2P) and crowdfunding. These generate passive income with attractive rates of returns on investment.

(P2P) lending is the direct lending to an individual or business. Businesses prefer these because they can access the funds faster and with less documentation than if they went to a bank. Investors can read the profile of borrowers on P2P platforms. Choose a reliable platform that remits your interest earned and principal as and when due. Select borrowers who are involved in everyday services/ products and have considerable experience. Lend “small” amounts to several borrowers in order to spread your risks. Invest in borrowers whose business model you understand and can monitor effectively.

Crowdfunding is defined as the practice of raising funds for a business/ project from a large group of people (crowd) who contribute relatively small amounts of money via the internet. The same levels of due diligence and caution should be exercised. Work only with reliable crowdfunding platforms and invest only in businesses that you understand. Ordinarily, the platform should have appraised the businesses before advertising them to investors, but you should also do your own investigations to convince your own self.

P2P and crowdfunding generate passive income monthly. Interest is earned from lending to peers and profit is shared with crowdfunded projects. Payment of principal also comes as agreed. Let us ensure we choose only reasonable projects and avoid those who promise unreasonable, unsustainable returns like MMM did a few years ago. Happy investing

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