The income investor’s hierarchy of needs
Fsp Invest, 15 Aug. 2013
Tags: income investor, income portfolio, income investing, capital, protect your capital, grow your capital, dividends, income, how to put together an income portfolio
When you look at your finances, it’s important you can pay for the basics before you spend cash on less vital items. This concept also applies to income investing. Read on to find out three priorities for your income portfolio…
There are certain priorities that rank higher than others when you put together your income portfolio, Zachary Scheidt explains in the Income & Dividend Report.
If you get these priorities right, you will be able to generate an ever-growing stream of income.
Get these priorities wrong, you could blow up your account and leave yourself in a very difficult spot.
Three priorities to boost your income portfolio
Here is the hierarchy of priorities…
Priority No. 1: Protection of capital
Your first goal as an income investor is to protect your capital.
You can't invest in a good income opportunity if you have no cash in your investment account. So your first priority is to always protect your capital. And do not take risks as you try to generate an income.
You worked hard to put that capital in your trading account.
Priority No. 2: Growth of capital
One of the flaws that many income investors have is they settle for a subpar investment opportunity because the stock may pay a strong dividend.
Instead of only looking at the income from an investment, you need to look at the fundamentals of the company you’re investing in.
You want to pick investments that grow AND add income to your account. They will generate the cash flow that you need from your portfolio.
And they will also have a growing capital base that allows you to get MORE income in the future.
Priority No. 3: Generation of income
Once you’ve sorted out risk and growth, you can pick out the stocks that generate healthy amounts of income!
This is when you look for strong dividend paying shares. This will represent the income portion of your gains.
It is important to make sure that these payments are sustainable and have the potential to increase as the company becomes more profitable.
Put together, these three priorities create the best approach to your income strategy.
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