Reasons To Opt For Income Investing Strategy

Here are factors to consider before opting for an income investment strategy or portfolio.

The investing pendulum typically swings you in one of two ways. You are either the one living off the returns of your investments – interests or dividends – which you receive periodically, or you are the one who wants to buy low and sell high, opting for ultimate investment growth over current gains.

While indeed a company can grow and give dividends as well, the truth is that the best companies for any of those goals are usually on the extremes. In other words, a company that wants to grow significantly will not spend unnecessary funds including those distributed as dividends but would rather reinvest the profits to maximize their potential.

This means that a company that gives out dividends would focus on making its investors happy to compensate them for the slow-paced growth. It would, thus, have a higher dividend yield compared to others.

A good investor does not end up in any circle. He or she is conscious of the end goals and would only acquire stocks that can potentially deliver that goal. As an income investor, you would need to put together a portfolio of assets that is tailored to maximizing annual passive income.

Opt for an income-based investment strategy if:

It Is A Key Source Of Income

The first reason to consider income investing is if you need income to survive today. If you have lost your job or for any other reason that has given investment an active role in your finances, it is safer to opt for income investing so you do not end up pulling out your funds prematurely from growth stocks.

Where you need multiple streams of income and your investments has been considered as one of such streams, only a portfolio or stocks that provide high yield dividends would be of help to you.

If You Have Retired

Age is a very important factor to consider when investing. It is easier for a younger person to invest or save into the future; however, unless an older person, say a 70-year old, is investing for the sakes of taking care of his family and loved ones even after he or she is gone, it is natural to focus on today.

Where you have retired and you want to live off your funds while still keeping your capital safe for contingencies that may arise, then opting for slower-growing securities that pay good dividends would also be the best decision.

If You Would Like To Spread Your Capital

People who have received huge sums of money are also advised to choose income investing stocks. A good example of this is the lottery. Some lottery companies would give you the option of either receiving your wins at once or spread periodically for years into the future.

The reason many people pick this is that it is a form of security and protection. In the same vein, if you have received a significant sum of money either by allocation from a will or by even the disposal of a company, investing in an income portfolio that would protect your principal and give you amazing returns especially because of its large size, would be your best bet.

In our next post, we would talk about the reasons you should opt for growth investing.

Written by Lawretta Egba