Every time someone starts to build his or her investment portfolio, his or her brokerage firm, financial advisor, financial planner or mutual fund company will ask his or her investing strategy. That investor will get the chance to select from a pre-existing checklist of various strategies, like capital growth, speculation. Preservation, or income. Now, let’s learn, one of those strategies, income investing.
The Definition of Income Investing
In income investing, you put all of your portfolio’s assets in order to decrease the annual cost that you pay. Many investors put together his or her income portfolio to get a constant stream of passive income.
This strategy is popular among retirees who need these funds for their living expenses. This strategy helps them to pay bills, buy medicines, purchase groceries and even pay their family member’s tuition.
Other than that, this strategy is also popular among individuals who have just received a large sum of money. That can be from selling a company, winning a lottery, or receiving an inheritance. That money can help them gain annual passive income as their additional salary.
The Assets for Income Investing Portfolio
The asset allocation for income investing can vary, yet you have to make sure that you have diversity in assets. Generally, the income investing portfolio contains dividend-paying blue-chip stocks, with traditional balance sheets.
That stocks have a history of increasing, or at least, maintaining their dividend per share, even during the down economy time. The examples of blue-chip stocks are Coca-Cola and Disney.
After blue-chip stocks, income investing usually also include bonds and other fixed-income securities. Other than that, real estate, property ownerships or real estate investment trust (REITS), is also common among income investors.
Well purchased REITS can bring you significant wealth, even if it can be riskier than other income investment assets. They are famous for being susceptible to market changes.
For instance, during the 2008 market crisis, REITS has lost more than 80% of its market value. Yet, many REITS investors have already purchased their entire purchase price before the crisis happened.
The last asset is master limited partnerships (MLPs). They are special publicly traded limited partnerships that can be purchased on the exchange, similar to stocks.