If you’re wondering what is investment income and how important is it for your retirement, consider the fact that most of us simply don’t have enough in savings to just bleed down the balance every month after we quit working.
Instead, we need income-generating investments that produce a regular “paycheck” of sorts while we are in retirement. Even if this investment income isn’t enough by itself. Do you need to build a portfolio that will generate cash?
This long-lost practice used to be popular before the great twenty-year bull market taught everyone to believe that the only good investment was one that you bought for $10 and sold for $20. Although income investing went out of style with the general public,
Here Are The Best Ways to Invest For Income
Dividend stocks are generally riskier than bonds since companies pay them out of their profits. Many income investors are willing to take on this extra risk if it means they can enjoy the potential of a regular payday with the long-term hopes of seeing their initial investment grow alongside the rest of the stock market. Dividend stocks can be a win-win when they deliver capital appreciation and consistent income.
Preferred stock is a kind of hybrid investment between stocks and bonds. This income investment is less stable than bonds since the stock value can fluctuate with market forces. Preferred shares take a back seat to bondholders in the event of bankruptcy, but they offer more stability than common shares.
And income investors will be particularly interested in the fact that these assets tend to provide a significantly higher yield.
You can attempt to buy rental properties directly, but that tends to require a lot of capital upfront and doesn’t allow for a lot of liquidity as your investment is tied up and not easily accessed if you need the cash.
As a result, many income investors prefer the strategy of investing in publicly traded real estate stocks instead. There’s a special class of stock known as the real estate investment trust, or REIT, that grants favourable tax treatment to a corporation if it distributes nearly all of its net income to shareholders.
4.Asset allocation funds
If you can’t decide how to build an income portfolio with some or all of these publicly traded investments, then consider a one-stop investment fund that will build the portfolio for you. These include a variety of asset allocation ETFs and income-oriented mutual funds.
“fund of funds” that invests around 45% to 75% of its total assets in equity ETFs and 25% to 55% in fixed-income ETFs and regularly rebalances to keep the mix right for market conditions.
Annuities have exploded in popularity over the last 10 years or so, as these income investments promise guaranteed monthly or annual income for a retiree until the day they die. It sounds wonderful, but there’s a big catch:
Annuities must be funded for many years in advance before you achieve any payout. This can come via a monthly payment like life insurance, or a lump sum upfront – sometimes as much as 10 or 20 years before you are eligible for your first distribution.