Sunday, August 10, 2014

Welcome to the World of Income Investing

Yes, You Can Be a Successful Income Investor by Ben Stein and Phil DeMuth is a great introduction to income investing. This book covers the basics income investments available to investors which include:
  • Bonds
  • Stocks
  • Preferred Stocks
  • Real Estate Investment Trusts (REITS)
  • and Annuities
Armed with this knowledge you can start to build your own income producing portfolio. One of my goals is to completely replace my earned income with passive (portfolio) income. I've estimated that in order to do that I'll need a portfolio worth approximately $800,000. Although this sounds like a lot, reaching this goal will become easier as the portfolio grows. This is because the income the portfolio produces grows as the portfolio grows, accelerating its growth (given that you reinvest all the income that your portfolio produces).

One important thing to note is that as your income portfolio grows you should be investing in lower risk income options, such as bonds. My recommendation would be to invest aggressively at first, when your portfolio is relatively small, then over time as your portfolio grows invest into safer, lower yield investments. As you're closer to reaching your goal it will be more about capital preservation than growth.

Here's some advice from Ben Stein: