There is no single solution for investing.
A person’s investment strategy depends on a number of factors, such as their goals and how much they have to invest.
For investors who want to guarantee a stable, fixed income over a long period of time — and are willing to give up a bit of growth to make that happen — income-focused investing is a safe choice.
What is it?
Simply put, income-focused investing is a strategy designed to generate a reasonable annual income at the lowest possible risk. This can make it an excellent strategy for investors who value dependable returns more than rapid growth.
For this reason, income-focused investing has a long and successful history both as a retirement savings strategy and as a way for people to earn a reliable income when they no longer work.
A brief history
For many years, the types of low-risk, high-dividend assets that are the backbone of income-focused investing were called widow-and-orphan stocks.
Before the widespread inclusion of women in the workplace, one of the main purposes of income-focused investing was to make the most of a man’s life insurance payout if he passed away before retirement — ensuring that his wife and children would have enough to live on.
With this type of portfolio, the goal was to guarantee enough income to pay the bills. Therefore, the strategy favored assets that performed predictably well over long periods of time, regardless of changes in the economy.
Utilities and mainstays with a history of good dividend payouts, like Coca-Cola, were common choices. By investing in assets like these, the investor sacrificed the chance for explosive short-term growth but gained stability and peace of mind.
How does it work?
The mix of assets best suited for income-focused investing are those known for producing steady returns instead of rapid growth.
1. Dividend stocks
A dividend stock is a share of a company that provides a regular, recurring payout (a piece, or “dividend,” of that company’s profits) to the shareholder.
A bond is a promise on the part of the company or governing body that has borrowed your money to return it over time with regular interest payments. One of the chief sellers of bonds is the United States Treasury.
3. Real estate
Investing in property, either directly or through a REIT, can be a great way to supplement a passive income stream.
4. Mutual Funds/ETFs/Index Funds
These funds allow investors to buy into a preselected portfolio of assets designed to maximize income while minimizing risk. Many corporate retirement plans, for instance, involve employees paying into a 401(k) account tied to mutual funds.
The bottom line
While it may not be as exciting as shouting out stock orders on the trading room floor, income-focused investing is a sound, time-tested strategy for investors looking to secure their futures.