Wednesday, January 12, 2011

Income Investors need personal income to replace working income

Income Investors need personal income to replace working income and that requires a strategy

Personal Income Investing Rules

TheMadam knows !
Invest in something that makes money.
Profit, another word for making money, is measurable and information on the profit generated by whatever you buy should be available or do not buy that instrument.
Income investments make more money than they pay out. If a company pays a 10% dividend but pays out more that it makes, don’t buy it. That rule applies if an investment pays our 3% but does not make money.
Pay off your house as fast as you can.

You can make a case for using leverage to create wealth and indeed it works, but you will sleep a lot better when your principal residence is owned free and clear.

Diversify your income portfolio by thinking of only two groups; (1) income instruments and (2) growth instruments.

Some think that diversification means stocks for growth and bonds for income but in many cases you may have some stocks that are core income producers and some bonds that you trade; diversify your income instruments. How much of your savings do you need for income? The rest you can use for growth.

High wealth people must invest in tax efficient instruments.

The most common tax efficient instruments are municipal bonds. Real estate and Master limited partnerships are also tax efficient instruments.

Never be afraid to take profit.

Taking profit really works with stocks. Selling covered calls at a 10% profit allows you to move into the next up and coming sector therefore you end up rotating sectors. You can find another value stock that makes money; pays a dividend and is available at a value.
You can also take profit in bonds when you buy at a discount and sell above the par or call price.

Never buy a bond at a premium.

Keep up with current affairs and you can find a company with a strong balance sheet that has trouble because of factors beyond their control. You may find their bonds a good buy at a discount. Eventually, if it is a good company, the trouble will go away and you can at least get the gain from keeping the bond until it pays at par. Sometimes you can sell at a premium.