Some people choose to invest for the long term, hoping their investments grow over time. Some, however, want more immediate returns. If you fall into the latter category, could income investing be right for you?
What is income investing?
As the name suggests, income investing involves putting your money into investments that are designed to give you a regular income. This includes things like property, dividend-paying stocks and funds, REITs, bonds and peer-to-peer lending options.
Often, those opting for an income investing approach will invest in more stable assets, reducing the risk of volatility for a stable income. However, some are willing to accept higher levels of risk for a higher potential return.
The pros and cons of income investing
Income investing can be an option for those looking to supplement their existing income – or to put money aside for the future – especially as investors can choose multiple income streams. The fact that income investing can be less volatile than other approaches also appeals to some: many of those with an income strategy will have their assets in sectors like utilities or real estate, which can be more protected from stock market crashes.
However, there are some downsides. When times are tough, businesses may cut dividends, which could affect your returns. Returns can be lower than other investment types, and one of the major risks with income investing is inflation. You may be receiving a steady income from your investments, but if the cost of living shoots up, your purchasing power could decrease. Some investors counter this by having a mixture of income assets and growth assets in their portfolios.
Finally, income investing is not without risk. All forms of investment come with their own risk – and while income investing can be lower risk than other forms of investment, some opt for higher yields, which come with higher risk levels.
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