The Income Investing Strategy

The income investing strategy is an investment method that puts an emphasis on how much income will be provided by an investment rather than looking at the potential for capital appreciation. Individuals who use this method generally invest in a variety of bonds as well as dividend stocks. This method is used by individuals who want to create a regular source of income for themselves or by individuals who value safety. Here are the basics of the income investing strategy.

Income Investing Strategy

The basic idea behind this strategy is to create a portfolio of stocks and bonds that will provide you with regular payments. Ideally, you should be able to create enough income that you can live off of the monthly payments that you receive and you will never have to touch the principal that you have invested.

This can be a difficult strategy to implement because it involves knowing a great deal about stocks and bonds at the same time. It is not get enough to become an expert in just one area. If you really want to be successful, you have to be able to conduct detailed analysis on stocks and the bond market.

Choosing Stocks

Many people believe that choosing stocks is the most difficult part of the income investing strategy. In order to be successful with this endeavor, you have to be able to properly identify companies that will pay a regular dividend. In today's market, there are fewer companies that pay dividends than ever before. In most cases, you will need to limit your search to large Fortune 500 companies that have a good history behind them. These companies that have already been through massive growth do not necessarily need to keep as much money on hand in order to reinvest in themselves. Because of this, they are more likely to distribute a good portion of their profits back to the investors. Many investors use valuation multiples such as dividend yield and dividend reinvestment to value the different companies in the market.

Choosing Bonds

The other part of the income investment strategy deals with choosing bonds. There are many different bonds that you could included in your portfolio. You could choose to invest in municipal bonds, government bonds, or corporate bonds. When you are trying to select the proper bonds for your portfolio, in most cases you should look at the bond ratings. Bond ratings are provided by financial institutions such as MorningStar or Standard & Poor's. These ratings attempts to give information to individual investors about the credit risks associated with a company.

Many people like to put a certain amount of their portfolio into United States Treasury securities. This provides them with a certain amount of safety because these securities are backed by the federal government. If you invest in the security of Treasury securities, you will be required to take a little bit of a discount on the interest rates that they pay. However, it may be worth it to have the safety that they can provide your portfolio.