Investing For Income
There are multiple ways to invest to provide your main source of income. My favorites are the stock market and real estate. Investing for income can provide a way to pay down debt, earn some extra cash, and support you in retirement.
This article will discuss investing for income in the stock market via stocks and bonds. In the stock market there are three forms of income; bond coupon payments, dividends and capital gains. Here are their formal definitions from Investopedia,
- Capital Gains – An increase in the value of a capital asset that gives it a higher worth than the purchase price.
- Dividend – a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.
- Coupon – the annual interest rate paid on a bond, expressed as a percentage of the face value.
When I first started investing asset allocation was one of my biggest dilemmas. Having no formal training or education in investing, I was completely lost when attempting to figure out a good asset mix. It wasn’t until I found this book on diversified portfolios that I finally received the answer I had been looking for.
In case you didn’t follow link, the book is The Intelligent Asset Allocator by William Bernstein. This book contains invaluable information on good asset allocations and how a good mix across classes of stocks and bonds, both foreign and domestic, can effect your portfolio. As I’ve matured as an investor, I have become less of an ‘Asset Allocator’ and tend to focus on a small selection of valuable equities rather than “buying the market”, as they say.
Nonetheless, diversification is key to many trading strategies thus we believe this information belongs on this site as it is aimed to educate rather than force our investment beliefs onto others.