Investing for the future can be daunting, and people have different priorities and financial strategies.
While some investors are attracted to taking more risks, especially when they’re young and have time to recover, many investors prefer an approach that yields peace of mind over wealth accumulation.
This approach, known as income-focused investing, emphasizes the virtue of stability and embraces a “slow and steady wins the race” ideology.
With income-focused investing, there is less focus on capital gains and asset appreciation (which, while exciting, is inevitably nerve-wracking, too).
Instead, income-focused investors are interested in income-producing investments. Their primary focus is generating cash. In other words, they want the highest possible annual income at the lowest cost while maintaining their capital.
If this sounds like you, there are four basic investment opportunities to explore: dividends, bonds, mutual funds and real estate.
A dividend is a portion of a company’s earnings paid to a shareholder (you). It’s an incentive that publicly traded companies offer in order to maintain investors.
Dividends are paid to shareholders in cash or, less commonly, stocks. Visit Nasdaq’s website for more information on which companies are providing the highest-yielding dividends to shareholders.
However, since past yields cannot always predict future performance, it’s worth working with a financial advisor to choose reliably performing stocks.
Simply put, a bond is a loan. An investor (you) loans money at a fixed interest rate to a corporate or government entity.
The investor is promised at least the principal in return, although the hope is the investor will receive both principal and interest. Since they’re a safe investment, bonds provide balance to an income-focused investor’s portfolio.
To add diversification, income-focused investors can turn to mutual funds, which consist of stocks, bonds, and other securities.
It is overseen by a professional money manager. There’s peace of mind in knowing a professional is monitoring your money.
Income-focused investors should investigate REITS (real estate investment trusts). A REIT owns, operates, or finances income-producing properties.
Real estate investments grow an investor’s net worth as the property is paid off. Furthermore, it offers positive tax benefits and protects against inflation.
The bottom line
Before you invest, you need to think about your short-term and long-term goals. More importantly, you need to define what risk tolerance you have when it comes to your money. Even Wall Street requires you to think with your head and heart.