If you’re working toward financial independence, income investing may be right for you.
Income investing is when you build an investment portfolio that produces enough of a profit that it can pay out an income on a regular basis. Your portfolio isn’t made up of the hot new stocks, but rather safe and secure investments that have a long history of stability.
“An income-focused investor isn’t really looking for the next Amazon or Tesla,” says Kevin L. Matthews II, author and founder of BuildingBread, an investing education company. “They’re more focused on investments that pay out solid dividends with less volatility.”
Even though income investing sounds like a great way to invest, there are some downsides. Read on to learn more about income investing and what you should look out for when trying this strategy.
What Is Income Investing?
Income investing is when your investments work for you, giving you a regular paycheck. Income investments may consist of securities and assets like dividend-paying stocks, bond yields, and interest payments. This helps create streams of passive income, or money that comes from owning assets.
There are many ways to add income generating assets to your investment portfolio. Buying real estate, or real estate funds called REITs, is considered an income investment because it can generate income. So can dividend-paying stocks, or stocks that return money to their shareholders.
Advantages of Income Investing
Investing in and of itself has some risk, but income investing can have some major upsides, including less volatility.
”When the stock market falls, investors who are following an income strategy will usually feel less pain because their assets are in sectors that are in essential areas of the economy like real estate and utilities,” Matthews says.
Risks of Income Investing
Just as there are upsides to income investing, there are downsides.
“No investing strategy is perfect,” Matthews says. “One of the main risks, especially this year, is inflation. If your income is steady but the cost of living increases then your purchasing power will fade over time.”
Also, some companies cut dividend payouts if times get tough, which means your income could suffer.
“Like all investors, you will need to pay attention to the health of the company,” Matthews says. “Some companies have cut or suspended dividends when faced with challenges and would have a severe impact on your potential income.”
Check out each company’s history before buying shares of the stock. If they’re volatile, they might not produce the same returns as a company that shows a long history of solid performance.
Another major downside for income investors is that because you are reaping the benefits of this income and having it go into your wallet, you are not reinvesting that income back into the stock market. This prevents compound interest from working its magic. When you have money in the stock market, the best thing to do is let it compound on itself. Over time, you can build a really solid lump sum that you can use for retirement.
Strategies for Income Investing Beginners
If you’re thinking about income investing, know that it takes a long time to build enough wealth to generate a consistently high income. Having a clear and focused investing strategy will prevent you from making rash decisions and help you stay on track long-term.
“As a beginner you’ll want to be aware of the trade-offs between income investing and growth investing,” Matthews says. “In my experience, new investors come into income investing with the idea that owning a few shares of a company will provide them with enough income to live on. It usually takes several thousands to produce a meaningful income with this strategy.”
Pandemic darlings face the boot as investors eye return to normal life
Stay-at-home market darling Netflix slumped on Friday, joining a broad decline in shares of other pandemic favourites this week as investors priced in expectations for a return to normal life with more countries gradually relaxing COVID restrictions.
The selloff, which began after Netflix and Peloton posted disappointing quarterly earnings, spread to the wider stay-at-home sector as analysts judged the new Omicron coronavirus variant will not deliver the same economic headwinds seen in the first phase of the pandemic in 2020.
“This a confirmation that the economy is gradually moving towards some sort of normalisation,” said Andrea Cicione, head of strategy at TS Lombard.
France will ease work-from-home rules from early February and allow nightclubs to reopen two weeks later, while Britain’s business minister said people should get back to the office to benefit from in-person collaboration.
“With a return to the office and travel lanes opening, darlings of the WFH (work from home) thematic are reflecting the growing reality that the world is moving slowly but with certainty towards a new normalcy,” said Justin Tang, head of Asian research at United First Partners in Singapore.
Netflix tumbled nearly 25% after it forecast new subscriber growth in the first quarter would be less than half of analysts’ predictions.
The stock, a component of the elite FAANG group, was on track for its worst day in nearly nine-and-a-half years following rare rating downgrades from Wall Street analysts.
“It is hard to have confidence that Netflix will return to the historical +26.5 million net subscriber add run rate post the 2022 slowdown,” MoffettNathanson analyst Michael Nathanson said.
“The decay rate on streaming content is incredibly rapid. ‘Squid Game?’ That’s so last quarter. ‘The Witcher?’ Done on New Year’s Eve!”
Exercise bike maker Peloton lost nearly a quarter of its value on Thursday, leading at least nine brokerages to cut their price target on the stock.
The selloff erased nearly $2.5 billion from its market value after its CEO said the company was reviewing the size of its workforce and “resetting” production levels, though it denied the company was temporarily halting production.
Peloton’s shares were up nearly 5% on Friday morning, bouncing back somewhat from a 23.9% drop on Thursday, its biggest one-day percentage decline since Nov. 5.
Both companies were part of a group, along with others such as Zoom and Docusign whose shares soared in 2020, and in some cases 2021 as well, as people around the world were forced to stay at home in the face of the coronavirus.
However, thanks to vaccine rollouts and the spread of the less severe Omicron strain of COVID-19, life is returning to normal in many countries, leaving companies like Netflix and Peloton struggling to sustain high sales figures.
According to data from S3 Partners, short-sellers doubled their profits by betting against Peloton in 2021, the third best returning U.S. short.
Direxion’s Work from Home ETF has fallen more than 9% in first three weeks of the year, compared to a 6% drop in the fall of the broader U.S. stock market. Blackrock‘s virtual work and life multisector ETF has weakened more than 8% this year.
In Europe, lockdown winners are also going through a rough patch as rising bond yields pressurise growth and tech stocks.
Online British supermarket group Ocado, Germany’s meal-kit delivery firm HelloFresh and food delivery company Delivery Hero which emerged as European stay-at-home champions in the early days of the pandemic have underperformed the pan-European STOXX 600 so far in 2022.
(Reporting by Alun John and Julien Ponthus; Additional reporting by Nivedita Balu, Anisha Sircar and Chuck Mikolajczak; Editing by Saikat Chatterjee, Alison Williams and Saumyadeb Chakrabarty)
Bitcoin falls 9.3% to $36,955
Bitcoin dropped 9.28% to $36,955.03 at 22:02 GMT on Friday, losing $3,781.02 from its previous close.
Bitcoin, the world’s biggest and best-known cryptocurrency, is up 2.4% from the year’s low of $36,146.42.
Ether, the coin linked to the ethereum blockchain network, dropped 12.27% to $2,631.35 on Friday, losing $368.18 from its previous close.
(Reporting by Jaiveer Singh Shekhawat in Bengaluru; Editing by Sriraj Kalluvila)
Oil, gas investment forecast to rise 22% in Canada – Investment Executive
It’s positive news for an industry that has now essentially recovered to its pre-pandemic levels, after a disastrous 2020 that saw oil prices collapse due to the impact of Covid-19 on global demand.
But CAPP president Tim McMillan pointed out that in spite of the fact that oil prices are at seven-year highs and companies are recording record cash flows, capital investment remains well below what it was during the industry’s boom years. In 2014, for example, capital investment in the Canadian oilpatch hit an all-time record high of $81 billion, capturing 10% per cent of total global upstream natural gas and oil investment.
“Today we’re at $32 billion, and we’re only capturing about six% of global investment,” McMillan said. “We’ve lost ground to other oil and gas producers, which I think is problematic for a lot of reasons . . . and it leaves billions of dollars of investment that is going somewhere else, and not to Canada.”
Investment in conventional oil and natural gas is forecast at $21.2 billion in 2022, according to CAPP, while growth in oilsands investment is expected to increase 33% to $11.6 billion this year.
Alberta is expected to lead all provinces in overall oil and gas capital spending, with upstream investment expected to increase 24% to $24.5 billion in 2022. Over 80% of the industry’s new capital spending this year will be focused in Alberta, representing an additional $4.8 billion of investment into the province compared with 2021, according to CAPP.
While the 2022 forecast numbers are good news for the Canadian economy, McMillan said, it’s a problem that companies aren’t willing to invest in this country’s industry at the level they once did.
He said investors have been put off by Canada’s record of cancelled pipeline projects, regulatory hurdles and negative government policy signals, and many now see Canada as a “difficult place to invest.”
However, Rory Johnston, managing director and market economist at Toronto-based Price Street Inc., said laying the decline in the industry’s capital spending at the feet of the federal government is overly simplistic.
He added while current “rip-roaring, amazing” cash flows and a period of sustained high oil prices will certainly give some producers the appetite to invest this year, Johnston said, it will likely be on a project-by-project basis and certainly on a smaller scale than the major oilsands expansions of a decade ago.
“You have global macro trends across the entire industry that have begun to favour smaller, fast-cycle investment projects – and most oilsands projects are literally the polar opposite of that,” he said.
One reason capital spending isn’t likely to return to boom time levels is because companies have become much more cost-efficient after surviving a string of lean years. And that’s not a bad thing, Johnston said.
“The decade of capex boom out west was tremendously beneficial for Canada and Albertans, but it also caused tremendous cost inflation,” he said.
“While what we’re seeing right now is not as construction-heavy and not as employment-heavy – and those are two very, very large downsides – the upside is that you’re much more competitive in a much more competitive oil market,” Johnston said.
In a report released this week, the International Energy Agency (IEA) hiked its oil demand growth forecast for the coming year by 200,000 barrels a day, to 3.3 million barrels a day.
According to the IEA, global oil demand will exceed pre-pandemic levels this year due to growing Covid-19 immunization rates and the fact that the new Omicron variant hasn’t proved severe enough to force a return to strict lockdown measures.
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