One of the ways that you can improve your cash flow is with the help of income investing. An income portfolio can help you create a fairly steady revenue stream that can benefit you during retirement, or just during the regular course of your budget.
As you prepare to build an income portfolio, here are 5 things to keep in mind:
1. Start Small
You don’t need to start out with a huge chunk of money in order to build your income portfolio. The important thing is to get going with it. Start small, using dollar cost averaging to your advantage. Make regular investments in income assets and watch as your portfolio grows a little at a time.
2. Reinvest Your Payouts
At first, your payouts are going to be relatively small. However, that doesn’t mean they can’t be put to good use. When you receive dividends, reinvest them. During the building phase, you can enroll in DRIPs that can help you automatically reinvest your dividends. Income from P2P lending, and interest from bonds, can be reinvested in your income portfolio to boost the amount of money you have working on your behalf. As a result, the cycle can perpetuate itself, providing you with more income as your portfolio grows.
3. Be Realistic about Your Time Frame
Most investors aren’t going to see a huge pay out at first. Indeed, if you start small and use dollar cost averaging to help build your income portfolio, it can take 7 – 10 years, or more, to build up to the point where you receive substantial income from your investment portfolio. You need to be realistic about your time frame as you build your income portfolio, and realize that it’s not going to happen all at once.
4. Look for Ways to Add more
It can take a very long time to build an income portfolio if you aren’t looking for ways to boost your additions. Find ways to save more money in your budget so that you can put more into trying to build your income portfolio. You can also look for sources of income that can help you improve the amount you invest. You might have to start small, but if you plan carefully, and look for ways to improve your ability to invest, you will most likely be able to reach your goal sooner.
5. Pay Attention to Stability
While you might be tempted to simply go for the highest possible yield, whether it’s a dividend stock, bond, or P2P loan, you need to take a step back and reconsider that impulse. During the building stage of your portfolio, the yield can be helpful (as long as you are careful). But as you move toward actually relying on the income from your portfolio, the situation changes.
High yielding income investments are often a bit unstable. With dividend stocks, experts often recommend you look for something with yield in the 3% to 5% range for a better chance at stable income. High-yield bonds are more likely to default, as are high risk P2P loans. Instead of being wowed by yield, take a looks at stability. That’s preferable if you are looking for a somewhat reliable source of income.
Tom Drake writes for Financial Highway and MapleMoney. Whenever he’s not working on his online endeavors, he’s either doing his “real job” as a financial analyst or spending time with his two boys.