How To Invest For Income Using Stocks?

Answer 1

When people think of investing for income, they usually think first about bonds, CDs or money market funds. That makes sense because each of these investments quotes a yield and pays out income on a regular basis whether it’s monthly or every six months. It’s easier using these investments because you kind of know what you’re getting.

What some people don’t know is that you can use stocks for the same purpose. Many larger companies pay out dividends on a quarterly basis and those dividends can be used as a regular source of income as well. One of the perks, especially nowadays, is that depending on the company and type of stock you may be purchasing many stocks sport yields that are as competitive as or even more competitive than bond or CD yields.

Now, that yield that comes with owning stocks can come with a caveat as well. Bonds, bond funds and CDs tend to have more of a stable value. Bonds and bond funds may have some fluctuation in value but the majority of the return you see tends to be in the form of income. The opposite can be true of stocks. Stocks may produce a steady dividend yield but you need to own the stock in order to get it and stock ownership comes with all of the daily price fluctuations that you’d come to expect from equity investments.

Stocks can produce great dividend yields but be sure that you’re willing to take the risk that comes with investing in stocks in general. A good year in the market could enhance the return you get in dividends quite a bit but a down year, like some of the ones we’ve experienced recently, could wipe out of your dividend gains and then some.

When looking for yield, don’t just look at the usual suspects. Investing in stocks for income could enhance your investment’s return will reducing your portfolio’s overall risk. It could be a winning combination!