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Making the Best Income Investing Choices

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Wednesday, March 27, 2019

Playing the investing game is even in the best of times a volatile and fluid activity. We all want more stable finances. We all want what is now being referred to as “Financial Wellness.”

One way to create a more stable activity out of your investments is fixed income investing. Fixed income investments are those with a more predictable return, and the returns are issued at certain times such as monthly, quarterly, or annually. Companies and governments issue bonds and pay a rate of return to raise capital.

There are different types of fixed income assets. Investors can buy individual bonds or build a fixed-income portfolio using exchange-traded funds or fixed-income mutual funds.

However, interest rates were raised by the Federal Reserve four times in 2018, and it seems that the rate hike is set to increase even further, by all accounts (possibly three more times in 2019).

While this increase will have positive effects on savings and certain investments (earning higher interest) borrowers will also feel the effects of the higher interest when it comes to their debt payments.

But for those who will benefit from these rate increases, market-watchers are saying that it may be time to reevaluate their riskier investments and put more attention on safer bets, like short- term U.S. Treasury bonds which are starting to show yields above 2 percent. 

The reason it’s so important to offset riskier investments is quite straightforward. If you’re gaining ground on some investments but losing on the riskier ones, then you’re likely to be at a net zero or worse. So shifting into those more conservative environments could potentially put you in the green.

When you take into consideration that the credit spread between high-quality and low-quality companies is widening and positive economic growth is decelerating, this could be problematic for the economy. 

Adjusting one’s portfolio to protect against possible exposure is the name of the game.

Besides market-based investments, there are also a few other options to consider when it comes to income investing.

Real estate is one area where experts uniformly agree that investment is a good idea. Rental properties may cost the buyer up front, but once the rent checks start rolling in, it’s an ongoing source of income. And for those who aren’t interested in the day-to-day burdens of property management, Real Estate Investment Trusts (REITs) are another option.

Pros and cons for a REIT are that they pay out 90% of their taxable income as dividends to investors, but the dividends are taxed as ordinary income. [4]

There are many other kinds of income investments to look at, from crowd-funded real estate to dividend stocks, index funds, and others. Passive income investments can make an investor's life easier in many ways, particularly when a hands-off approach is preferred.



Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC.

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Author: Sally Falkow

Categories: David Lerner Associates News


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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Lawrenceville, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 800-367-3000 Visit our website: www.davidlerner.com

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