Income investing is simply the process of designing an investment portfolio of varied diversified financial investments to get a regular passive income. These investments may include stocks, real estate, mutual funds, bonds, and other financial instruments. It’s important to carefully consider what types of financial instruments would be best for someone who wished to follow such an income investing philosophy and know the common risks that could affect such an investor. While there are many different ways to invest, in this article only the best income investing strategies will be considered.
When it comes to the best income investing strategy, there are three primary strategies that are currently considered by most serious investors. First, there is value investing, which looks at the stocks and other financial investments in the marketplace and assesses their value after they are bought and held by the investor. Second, there is safety investing which deals primarily in certificates of deposit (CD) accounts where large and liquid cash deposits are made with guaranteed interest rates. Last, there is growth or compound interest investing which makes use of a CD’s growth rate to earn a higher income and is used primarily with a saving or investment portfolio.
These are the three main categories of income investing. Value stocks of companies that have one of the three attributes listed above are the safest investments available. They are less risky than bonds and CDs and also offer the advantage of gradually rising in value over time rather than all at once. In terms of safety, it’s better to invest in low risk, long term bonds as opposed to the high risk, short term preferred stocks. Growth stocks or bonds of companies who earn a larger dividend yield than the market price are also safe options.
All three of these categories of investments offer flexibility to suit your own needs. For example, the growth stocks mentioned above can be invested in virtually any area. Also, bonds can be purchased from a wide variety of companies. You can choose the ones offering the best return on investment for your own goals.
Choosing the right type of investments is up to you and the kind of return you are looking for. It’s important to remember that the best deals will be secure investments and those that offer a low interest rate environment. For those investors with a history of solid returns, fixed income investments may be the best way to build a portfolio. It is also best to choose one of these categories and stay with it for the long term. Growth and low interest rate environments are favorable for these types of investments.
There are many ways to build an income investing portfolio. Some of the safest air through bonds, certificates of deposit (CDs), and savings bonds which offer high interest and steady income. There are also mortgage backed securities (MBS) that offer the same advantages as certificates of deposit and CDs. Another option is to use real estate. Buying good property can give you a steady income stream, even if it doesn’t appreciate as much as other investments.
The dividends received by income investors can be used to pay tax. Ordinary dividends are not taxable, but some dividends, like those received from stock certificates, are eligible for tax treatment. This is based on the distribution method used by the issuing company. Generally, dividends are treated as income by the corporation in the year of the distribution or the annuity period, whichever is later.
As stated previously, it’s best to use a mix of fixed income investing options to diversify your portfolio and protect against a shock to your portfolio if one investment loses value. Income investors must also do their homework to learn about company policies and the potential tax benefits of their investments. With the help of an attorney, they can prepare a full investment portfolio for clients. This protects them from losing money due to errors or omissions in the information. It’s always best to consult an attorney before making any major financial transactions.