Investing for Current Income

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Investing for Current Income

One of the goals you might have for investing is to generate more income. What kind of investor might have this as his or her goal?

Things To Know

  • Investors are drawn to income investments for many reasons.
  • Certain investments can be effective at providing regular income.

Who invests for income?

  • Someone who is retired
  • Someone who wants financial security and independence
  • Someone who wants a comfortable standard of living
  • Someone who wants to pay off debts and bills
  • Someone who wants extra money to travel

Certain types of investments can be more effective than others for generating income on a regular basis. These include the following:

Common income investments

  • Cash and equivalents, including money market accounts, CDs, and Treasury bills and notes. These instruments provide interest income on a regular basis. Learn more about the risks of money market accounts and Treasury bills.
  • Bonds, including Treasury, municipal, and corporate bonds. These provide a higher level of fixed income over time. Learn more about the risks of fixed-income investments.
  • Income stocks, including preferred stock, utility stock, and high-capitalization blue chip stocks. These stocks pay income in the form of dividends. These dividends should not be considered guaranteed, as companies often decide to lower or not pay them in certain circumstances.
  • Income mutual funds. Income funds provide a way of investing in diversified portfolios of income investments such as the ones mentioned above, and may provide reliable income over time. Learn about the risks of mutual funds.

However, a portfolio made of these investments may run the risk of not growing as much in value over time as would a growth-oriented portfolio. Some investors find that they need to balance their goal of income with their desire to build the value of their investment capital. Even though typically less volatile than growth investments, income-related investments have unique risks that need to be considered before investing including interest rate risk, credit risk, duration risk, and prepayment risk.