Thursday, September 01, 2011

Fixed Income Investing for safe investors

Who does not want to invest in options whose income are not taxable and which gives steady flow to cash in our pocket. Generating streams of fixed income from such investment options can ultimately lead to financial independence. The fixed and stable income generation (which is not taxable) is not easy to find in the financial market.

Broadly there are two options available for investors, (1) Investing in corporate dedt schemes & (2) Investing in long term in shares that can pay out high dividends. An investor who is conversant with stock market investing can go ahead and directly buy high dividend yield stocks or else others can seek professional help in selection of shares.

Income investing in high dividend yield is always done with long to very long term investment horizon. Income investing is not done with the objective of value appreciation of assets, because in income investing assets are not bought to be sold on later date. Like Warren Buffett says, “I buy shares to own it forever”.

Bonds are favorite for income investors

Bonds has a characteristics of generating fixed incomes after a cetain interval of time. Income investors loves bonds. The debt linked investment options are also preferred by income investors. Debt linked schemes are better risk hedges. Bonds which are issued by government (like infrastructure bonds) are also consdered great risk hedge.

Income investors must know that all debt linked investment schemes do not carry same level of risk hedge. High yield bonds carry comparitively larger risk than investment grade bonds. Lower risk investment schemes are like bank deposits, treasury bonds, post office savings accounts etc.

High Dividend Yield Stocks

We considers high dividend yields as the best form of income investing. The shares at undervalued levels not only gives high dividend yields but also gives advantage of value appreciation over a course of time. Generally growing companies do not pay dividends, but their share valuation increases at a drastic pace over time. But once their get out of the expansion mode they start disbursing dividends. Generally large cap or blue chip companies pay reasonable dividends, but make sure that you pick them at undervalued price levels. It is important for income investors to continue to check the market fundsmentals of their holdings, as decreasing fundsamental strengths will also effect the dividend flow.

Income investors must note that the income generated from this form of investing may not beat inflation specially in developing countries. Hence We will suggest that a combination of income investing and value investing will be ideal. Value Investing will allow you to build a portfolio full of shares with high dividend yield shares. May be some companies do not pay high dividends but you can be certain that the value appreciation over a courese of time will make up for this loss. Value investing in growth stocks will be even better, But let me tell you here in getmoneyrich you also get investment advice on investign in mid cap (growth) stocks.
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