Many people don’t know the best way to manage their money. Therefore, they struggle to multiply the profitability even if they have a good investment opportunity.
The income investment strategy would be an option for you where making a consistent profit is possible effectively. The following section will see everything a trader should know about income investment strategy as a passive income source.
What is the income investment strategy?
This strategy’s core structure is different from other methods where making regular income is the primary requirement. It is a method, where the primary aim of the investor is to earn regular income from a source. Many investment opportunities offer regular income like dividends, interest payouts, rental income, or bond yields.
If you are new in the investment world, you might wonder about seeing the trading portfolio’s income investment strategy. However, it is a good opportunity for traders from all levels as it does not involve any deep analysis in the investment.
Let’s see what options are open in the strategy:
- Government bonds
They are safe-haven investment opportunities where money generates a regular income. The basic concept of this approach is to lend money to the government for a specific time frame, and the government will pay regular income from its activity. It is known in the investment world as a low-risk or income case, a risk-free investment opportunity.
- Stocks
Investing in stocks is an income investment method applicable to shares of a company that provides a regular dividend. Investing in such companies requires sound knowledge about fundamental analysis. In that case, investing in dividend aristocrats has a higher possibility of winning.
- Corporate bonds
They work like government bonds, where the users of these assets are corporates instead of the government. However, corporate bonds are riskier than government bonds, where the profitability is higher.
These are the basic structure of income investment, but there are more opportunities like real estate or investment in mutual funds or interest-bearing accounts.
How to determine the income investment strategy?
It is a set-and-forget method that involves a deep understanding of the market structure and behavior before initiating the process. On the other hand, it is a long-term investment method involving the HODLing approach. Therefore, you cannot invest your money in any income investment sector and expect profit on the next day.
The best income investment method depends on several factors, as shown in the below section:
- Identify the macroeconomic structure
In an economic boom situation, the interest rate should be lucrative. On the other hand, higher inflation might reduce the buying power of money even if the income is higher.
- Consider the risk
Every investment is associated with some unavoidable risk. Usually, the lower risky investment has lower returns, while the higher risky investment has a higher return. You might see a 10% to 100% move in a single swing in the crypto market, but it is riskier than the income investment.
- Diversify
Diversification involves expanding the investment in multiple sectors to maintain profitability even if some sectors show negativity.
Bullish trade setup
We will see how to open a buy position in a stable dividend stock in the bullish trade setup. Thus, the financial market moves like a zigzag, where a bearish correction is common within a bullish movement. Therefore, we intend to buy a stock where the broader market direction is bullish, and the price is showing a minor correction.
Enter
Before buying a stock, make sure that the price is undervalued where the future potentiality of the stock is strong. Later on, open a buy order from a suitable support level with the stop loss below the recent swing low.
Take profit
The ideal take profit of the stock is to earn profits from dividends. Therefore, investors should hold the buy position as long as possible.
Bearish trade setup
It is essential to find where you should close your investment in the income investment strategy. For example, you will no longer receive regular income in a government bond if the government becomes bankrupt. The same theory applies to other sectors visible in the trading chart.
Enter
Open a sell position in government bonds or stocks investment when the macro or microeconomic condition is bad. In that case, open the chart and find the price at a major resistance level and close the previous buy order.
Take profit
When you withdraw your investment from the income investing instrument, you will no longer receive any benefit, but you are open to using your full capital for future investment.
Is the income investing strategy profitable?
If you want to gain a passive income, the best option is the income investment strategy. It does not require direct involvement in the trading chart as you don’t have to make any trading decisions. However, you should consider a long-term investment approach before injecting money into it.
Pros & cons
The income investment strategy is profitable, but the ultimate success depends on how you consider the pros and cons of this approach.
| Pros | Cons |
| •Passive income An income investment strategy is an approach to earn a regular income that suits it as a passive income approach. | •Risk Like other investment methods, income investment strategy has some risks, coming from the nature of the business. |
| •Portfolio diversification It is good to include the income investment approach in the trading portfolio to ensure profitability. | •Return on investment Direct trading on stocks or forex has higher profitability than income investment. |
| •Financial knowledge The income investment approach does not require deep financial trading knowledge. | •Market uncertainty Investors need deep knowledge about market uncertainty and the macroeconomy. |
Final thought
Income investment is a way to earn money from a source regularly. Therefore, it would be a good option if you intend to make regular profits as a passive income. However, like other investments, there are some risks that you cannot ignore. Therefore, make sure to include the risk measurement in every investment decision.