Investing for Income is a way of investors simply looking to supplement and grow their income through investments. The following tips on investing for income may help you to counter the negatives associated with low interest rates;
- Understand investing for income options - In order to make a well informed decision based on your situation, it is important to understand the investing for income possibilities. One of the most ‘popular’ are corporate and government bonds because they typically pay a fixed rate of interest. However, bonds are not the only source for fixed income investments. Other options include; strategic bond funds, equities and properties.
- Understand the potential risks of investing for income options – Every investment choice has risks, and investing for income is no different. But it is important to understand these risks. For example; Bonds – Income from these can be eroded by increases in inflation due to the fixed rate return, Equities – While they can offer protection against inflation, dividends are not guaranteed and can vary in value and Property – This usually requires a heavy outlay and are far more illiquid than the likes of equities as the buying and selling process takes far longer.
- Consider going international - Look for good and sustainable dividend opportunities beyond the UK alone.
- Adopt a patient mentality - Being patient is crucial for making a good investing for income dividend. Take a deep look at the history of a company and its future growth prospects. Also understand whether it was that has a lot of free cash available, as this may well be given back to shareholders in some part via dividend payments.
- Avoid ex-growth companies – Be careful and make sure you are not investing in an ex-growth company. These companies can offer big dividends in the short-term, but this will usually deteriorate due to a lack of growth prospects.
- Look for reliability - Look for reliable returns by companies, ones which are less severely affected by economic issues and can ‘whether a storm’ should be able to pay higher dividends.