Income investment is an investment which aims to pick assets that provide a steady stream of income. Investment income comes usually from interest payments or dividends. The most common income investment is investment in dividend-paying stocks. Recently, we discussed Top 20 Dividend Stocks. In this article, we will focus on other types of income investments that can boost income earnings.
One of the possible income investments might be an investment in foreign bonds. A foreign bond is issued in a domestic market by a foreign entity in the domestic market’s currency. Issuing a foreign bond is a common practice for foreign firms doing a large amount of business in the domestic market. When domestic currency is in a slump, foreign bonds perform better. According to Investopedia, foreign bonds can earn between 3% and 6%.
High interest paying bank accounts are a very conservative income investment yielding lower return when compared to stocks or foreign bonds. These bank accounts pay between 0.5% and 5% in most developed countries depending on the region and the bank. Drawbacks are that there are certain terms and conditions restricting this type of investment. Often, there is a maximum balance on which higher interest rate is applied. These balances tend to be as low as few thousand pounds so this investment is sensible for small investors. Income tax and other bank fees are also paid which can reduce yield significantly.
Real Estate Investment Trust also known as REIT is a company that owns real estate producing income. Created by the U.S. Congress in 1960, REITs were designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks. By law, they are required to pay out at least 90% of their earnings. This makes them attractive as an income investment. Moreover, REITs can avoid most or all tax liabilities depending on a country. According to Investopedia, REITs typically pay out between 2% and 6%.
Junk bonds are bonds of riskier companies which have lower credit ratings. Junk bonds offer higher return to offset the risk. It is a common practice to diversify and invest in a mutual fund containing more of these bonds to reduce the risk. Junk bonds known as high-yield bonds can pay out an average of 6% to 8%. Municipal bonds are also worth considering since they are safer than junk bonds. In certain countries, interest earned on municipal bonds is not taxed. On the other hand, they offer lower return.
Dividend paying stocks are the most popular income investment, but it is worth remembering that there are other investments providing a way to diversify cash flow from your investments.