The last two Short & Simple Investing Lessons have been about investment objectives. An objective is your main reason for buying a particular type of asset. The first question to ask, then, when looking to invest some of your wealth is what you want that money to do for you.
The main categories are:
- It’s not lost
- It grows in value
- It provides income
- A combination of any of the above
This week we’ll look at income as an objective. This just means that you want an investment to pay out income while you own it, more than you want it to grow. Of course, no one wants to lose money, but when income is the main objective, receiving the income is more important than some fluctuation in the value of the investment, or long term increase in value.
Historically, interest from bonds and dividends from stocks have been thought of as the main source of investment income. For the past couple of decades these returns have been very low, however, especially stock dividends. Many individual investors have, therefore, looked to more alternative investments for income, such as oil and gas trusts, real estate rental properties, and option selling, especially a strategy known as “covered call writing”.
Income as an investment objective will be covered in more detail during the year as part of the monthly core curriculum at the Global Alliance of Financially Empowered Women being launched soon. Since your investment income is the starting point for choosing an investment, you can see how important it is to know your options. A financially empowered woman always knows what her options are so she can make good choices to reach her financial goals.