One of the ways that you can cultivate another income stream is to build an income portfolio. Your income portfolio, properly built up, can provide you with regular income later on. As long as you realize that income investing takes time (a good portfolio can take 10 years or more to build) and patience, you can create a plan for passive income from investments.
What are Income Investments?
In general, income investments provide you with a revenue stream on top of an principal or capital appreciation. Some common and fairly accessible income investments include:
- Dividend stocks
- P2P loans
There are other investments that can be included in an income portfolio, but these are generally easy to understand, and simple to invest in.
Using ETFs to Invest in Stocks and Bonds
When you’re starting out, you can use ETFs to make the most of your buck. Dollar cost averaging is an important part of building up your income portfolio over time. ETFs make it fairly easy to invest. They trade like stocks on the market, have low expense ratios, and many discount brokers offer commission-free ETFs.
It’s possible to gain exposure to stocks and to bonds through ETFs. Bond ETFs can provide you with the opportunity to invest in a variety of different bonds of different maturities, and there are dividend stock ETFs designed with different goals in mind to help you reach your goals.
In either case, the result can be a simple portfolio designed to build income. Many income ETFs allow you to reinvest your earnings so that you can buy more shares, effectively boosting your holdings and payouts at a faster rate.
Realize, though, that there is the possibility of loss with ETFs, just as with any investment.
REITs and P2P Loans
These investments are also fairly easy to get started with. REITs pay dividends, and they trade similarly to stocks on the exchange. They offer you exposure to real estate related investments. Only, instead of worrying about rental tenants and trying to come up with the capital to buy a rental property, you can invest in partial shares and receive dividends. If the real estate market crashes, though, you might be trouble.
P2P loans are an increasingly popular way to invest. You loan money to your peers, and make money on the interest. It’s fairly easy to get started with P2P loans, and you can invest as little as $25 to get started. You do need to be careful, though, since there is a default risk with P2P loans. The borrower may not pay you back, and you could lose your principal, as well as your interest.
Watch Out for Risk
While it can be fairly easy to get started with income investments, you still need to be careful. Make sure you understand your risk tolerance, and that you don’t invest money you can’t afford to lose. Take the time to learn about the investments before you put your money into them. If you aren’t sure, it makes sense to consult an investment professional who can help you determine the best course of action for you.