One of the ways you can add a little more income diversity to your life is to start an income portfolio. An income portfolio is comprised of investments specifically designed to provide you with cash flow now. It’s not about seeing a large amount of capital appreciation (although that is possible in some cases); rather, it’s about creating a regular stream of income that you can use.
You can start your income portfolio out slow, adding to it over time, and expecting it to take seven to 10 years – or more – before you see a significant income from your portfolio. The key, for those without a lot of capital, is to establish a spending plan that allows for regular investment. However, once your portfolio is established, you can manage it so that you receive monthly or quarterly payments from your investments.
What Assets Should Be Included in an Income Portfolio?
Ultimately, how you decide your income should look is up to you, depending on your risk tolerance, and your goals. As you build your income portfolio, here are a few assets to consider:
Dividend paying stocks: One of the best ways to build an income portfolio is to use dividend paying stocks. A dividend income portfolio can help you see the chance for capital appreciation as well as for regular income. The right stocks can provide you with peace of mind, and stable cash flow.
Bonds: With bonds, you essentially loan money to an organization. You receive interest payments during the term of the bond, and the principal back at the end of the term. The interest you receive can be a source of income.
Real estate: If you rent out real estate that you own, you can receive regular income from the payments. Additionally, if you invest in REITs, you can receive regular dividends without actually owning property.
P2P loans/microloans: One popular addition to some income portfolios is the P2P loan. You can loan money to others, and receive regular payments. The interest you receive can result in regular income.
High yield cash products: Many people like the safety of cash, and choose high-yield cash products like CDs and savings accounts. Your money is insured by the FDIC if you get the right products, and you can usually receive regular interest payments.
Anytime you invest, though, you need to realize that there is the risk of loss. You might see your real estate values plummet, and stocks can lead to capital losses. Bonds and loans can be defaulted on. Even with cash products there is the risk of loss as inflation threatens to erode your real returns. Before you put together your income portfolio, make sure you understand the risks involved, and consider diversifying to better protect against losses from market volatility.