Investors come in many forms, depending on the type of investment venture they choose to engage in. You’ll come across real estate investors, who invest on residential and commercial property rentals while stock market investors are experts in investing on stocks. Generally, investors who venture into income-generating investments are called income investors.
What Is Income Investing?
Income investing refers to an investment strategy centered on creating an investment portfolio that generate regular income. An investor dealing with this type of investment is called as an income investor. The primary objective of income investing is to generate a constant stream of income in the form of paid out profits or dividends.
So, what are the important things you have to consider if you want to become an income investor?
- Choice Of Income-Generating Investment
There are many types of income-generating investments today, depending on your risk level, money, experience, and your preferred choice. Before making a final decision, it’s important to do your homework by checking out reliable resources for income investors.
Take a look at the following examples of income-generating investments:
- Dividends: These are paid out profits from stocks.
- Real Estate Rentals: Earned income from rental fees of real estate properties.
- Capital Gains: This is the earned income from selling appreciated assets.
- Royalties: You can gain passive income from selling rights, such as when you wrote or invented something.
- Business Profits: This refers to revenue generated by investors’ own businesses.
- Earned Income: This is a result of paychecks.
- Others: Interest from bonds, savings, certificates of deposit, or any other lending activities.
- Investment Expectations
How much cash do you expect to get from your income investing portfolio? It’s essential to know what to expect in an income-generating investment—not just your projected profits, but also the amount you must reserve as your balance every year.
As a Wall Street rule, investors must leave at least 4% to avoid running out of money. For example, if you managed to save US$350,000 by the time you’re 65 years old, you should only take yearly withdrawals of $14,000, so you’ll never run out of money.
- Create A Diverse Income Stream Strategy
One of the biggest financial regrets that seniors have is not being able to save enough and set up a retirement plan in their twenties. They often end up paying for too much debt because of car loan and mortgages. But you don’t have to end up in such a situation. As early as possible, you need to invest for your future.
Creating multiple income streams as an investment strategy will give you real returns. If you’re an average income earner, it’s best to reduce your withdrawal rate and increase your investment rate so you can live a comfortable life as you retire, as well as earn your dividends and return on investment.
Here are the benefits of creating a diverse income stream strategy:
- Diversify different cash flow sources that come in to lessen losses if one investment dries up.
- Enable you to live within your means because you’re paying up for your retirement plan and your children’s college plans.
- Live a comfortable life when you retire without worrying where to get the funds to pay for your needs.
- Risks And Benefits Involved In An Income Investment
In any type of income-generating investment, there’s always a level of risk involved. While many are conservative, there are also investors who are risk takers, brave enough to invest a huge amount of money in an investment they believe in. Others prefer to be calculated risk-takers.
Weighing the risks and benefits of an income investment is important because of the following reasons:
- Avoid major financial losses.
- Avoid impulsive investing.
- Maximize return of investment.
- Prevent major stress and hassle.
- Your Investment Capability
A major aspect to consider when income investing is your capability to sustain payments for your investments. It also includes considering the nature of your job or business. Are you a permanent employee? Do you have consistent business income? Before making a final decision, establish a solid system or contingency plan to ensure investment success.
You’ve just learned the important considerations in becoming an income investor. It’s important to determine your investment capability, so you can choose the right income-generating investment. Also, it’s crucial to set your expectations properly and weigh the risks and benefits of a particular investment to prepare yourself for the worst thing that may happen. Creating a diverse multiple income portfolio will help you avoid major financial losses.