Income Investing

Income investing is centered on building an investment portfolio particularly structured to generate regular income. The main objective of this investing strategy is to generate a consistent flow of income that can be in the form of dividends, bond yields, and interest payments. Investments can include real estate, stocks, mutual funds, and bonds that will generate the highest possible annual income at the lowest possible risk.

Finding a monthly income target for your portfolio:

  • You will mainly be concerned with your withdrawal rate, which is how much income you pull out from your investments each year.
  • The rule of thumb in income investing is if you never want to run out of money.
  • You should take no more than 4% of your balance out each year for income — commonly referred to on Wall Street as the 4% rule.

Three major "buckets" of potential investments:

  • Dividend-Paying Stocks: Both common stocks and preferred stocks are useful. 
  • Bonds: You have many choices when it comes to bonds. You can own government bonds, agency bonds, municipal bonds, savings bonds, or others.
  • Real Estate: You can own rental properties outright or invest through real estate investment trusts. 

The simplest income investing allocation could be:

  • 1/3 of assets in dividend-paying stocks that meet previously stated criteria
  • 1/3 of assets in bonds and/or bond funds that meet previously stated criteria
  • 1/3 of assets in real estate, most likely in the form of direct property ownership through a limited liability company or other legal structure