You’re young. You’ve got time on your side. Conventional wisdom may say: Invest heavily in stocks. You’ve got many years ahead to ride out any downturns.
Therefore, income-focused investing may only be a tiny part of your portfolio strategy.
However, if you tend to be more conservative in your risk tolerance or are looking to generate cash in the present or near future, income-focused investing might be the right place to start…and maybe stay.
Meet the income-focused investors
Income-focused investors are interested in achieving the highest possible annual income at the lowest cost. They are less interested in dramatic wealth accumulation and more interested in generating the largest possible cash flow while simultaneously not depleting their capital.
Know your options
This type of investing relies heavily on dividends, bonds, mutual funds, and real estate to round out a financial portfolio.
Dividend: A payment that some publicly traded companies offer their shareholders, typically on a quarterly or annual basis.
Bond: A loan an investor provides to a corporation or government entity. It has a fixed interest rate and a deadline for repayment.
Mutual fund: An investment that consists of stocks, bonds, and other securities and is overseen by a professional manager. Diversification is important, so mutual funds can be an attractive component of an income-focused portfolio.
Real estate: Since this market tends to appreciate over time, many investors consider it a solid income-focused option.
Consider total-return investing
Income-focused investing is not the only approach a young investor can take. Total-return investing focuses on asset appreciation, but it can also be used to generate income.
For a relatively young investor, adopting some total-return principles may be enticing because it allows you to grow your wealth more dramatically at a time when you can still absorb losses (something that will be less true when you retire).
Go long and be vigilant
While income-focused investing is less susceptible to market volatility, an investor still must be patient.
Also, once you’ve set everything up, don’t just forget about it. Research and read up on different money strategies. To maximize your wealth, all investment approaches require constant vigilance either from you or your financial manager (or both).
The bottom line
Income-focused investing is a stable, conservative approach to investing your money if your objective is less about capital gains and more about a steady income stream. So evaluate your financial goals. Set up a game plan that makes the most sense to you. You’ve got a long time to let your money grow and work for you — and that’s a huge asset.