How to Be an Income Investor
Income investors are often looked down upon because they subscribe to the "buy & hold" investing strategy. However, income investing is one of the most proven and well respected methods available in this world of flashy day traders and high flying hedge funds. Why not sit back, and allow companies with strong earnings, strong cash flow and a positive growth future pay you for buying their stock? Especially when certain high-yield companies have dividend yields (i.e. cash payments) higher than that of most savings accounts and money market funds. Even better, if you select growth companies paying dividends instead of fixed income (i.e. CDs, savings accounts, bonds), the shares your purchase can also increase in value! Alternatively, fixed income (also called secured income) investments are not tied solely to investing in stocks and and particularly attractive to those during uncertain economic times or for those nearing retirement age.
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Instructions
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Buy stock in companies with consistent positive earnings growth and have a history of increasing dividends over time. In particular, companies that provide products required for essential living and maintaining a modern lifestyle are prime candidates. Companies that fit this profile are ExxonMobil (automobile gasoline) or Proctor & Gamble (consumer staples like laundry detergent and toothpaste).Examples of how to pick high paying dividend stocks can be found in the resources link below.
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Buy income generating Exchange Traded Funds (ETFs) or Mutual Funds. Many professionally packaged investment products are tailored for clients with specialized needs, and income funds are among the most popular for longer term investors. One word of caution - be sure to check the performance of the ETF or mutual fund manager compared to the S&P 500. Stay away from managed assets that do not outperform the broad indices because many of these managed products have higher fees associated with them, and there no need to pay extra for something that doesn't work.
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Place your cash in a high yield savings account or high yield money market account. These accounts are the primary sourcesFor more information on how to find the highest-paying savings accounts, a link is available in the resources link below.
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Buy real estate and become a landlord. This is often more difficult than it sounds, but buying and holding real estate for long periods of time has historically been an optimal means of generating income, as well as wealth. Each month, the proceeds from rentals should cover the mortgage (if any) and other upkeep and maintenance fees.
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Buy guaranteed income securities like Certificates of Deposits (CDs) or bonds (government or corporate) that provide a specific rate of return. The returns are often lower, but provide a greater degree of security.
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Buy income generating Exchange Traded Funds (ETFs) or Mutual Funds. Many professionally packaged investment products are tailored for clients with specialized needs, and income funds are among the most popular for longer term investors. One word of caution - be sure to check the performance of the ETF or mutual fund manager compared to the S&P 500. Stay away from managed assets that do not outperform the broad indices because many of these managed products have higher fees associated with them, and there no need to pay extra for something that doesn't work.
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Tips & Warnings
Research any future investment with a cautious nature. Many novice investors are easily sold upon one or two basic premises and fail to see the big picture.
Ask your family/friends for advice when investing. If they have prior experience in these areas, having an intelligent conversation about the subject can shake out poorly thought out ideas.
Buying real estate after the great credit crisis of 2007 to 2008 will be much more difficult, and will require a substantial down payment (~ 20%), so be prepared to see a sizable reduction in your cash holdings (savings account).
Not everyone is adept at making their own financial decisions, so don't be afraid of hiring a professional to run your finances if you feel you are at risk of losing your hard earned cash.
If buying real estate for the purposes of renting out, be certain to have a professional lease document constructed to avoid any potential pitfalls (deadbeat tenants, damages, etc.).
