There are two types of investment.
- An investment for capital growth – you invest in something now in the hope that over the coming years you will be able to sell it at a profit. You are always making an assumption that there will be someone else that wants to own that thing. Once sold you get to keep the profit.
- An investment for income. This is where you make a decision to buy or invest in something because of the potential for income. If you are investing in shares, this income is called a dividend and if you are investing in bonds it is a called a coupon.
Capital growth can be taken away at any time. The markets do move. There may not be a buyer around when you decide to sell.
Income, once paid is yours to keep forever. It can’t be taken away.
Traditionally we invested in shares in order to get the income. You can’t pay bills without cashflow. We work for income, not capital growth. So the idea of investing for income should come easy to us.
Problem is, none of this is sexy enough for the fund managers and investment advisers. Good income producing investments are harder to come by and so a whole new market was created. The ‘growth market’. This allowed many different opinions to flourish.
We now have more opinions (fund managers) than shares in which to invest. Not all of them have made it, not all of them will. But they will most certainly charge you for the benefit of investing with them.
From an investment risk point of view. Investing for income will always provide a lower risk approach to growth and of course does provide an element of guarantee – once income is paid it can’t be taken away. Something that is a major benefit in any market.
The most successful investors on the planet invest for income. If you are looking to obtain financial independence, then income is important. There is no way of meeting your obligations in life without income. Therefore this strategy has to form the basis, the cornerstone of your pension and investment planning.
By making a decision to invest for income you would consider a low cost income fund initially. Or if you wanted to be more adventerous and buy shares directly you would consider businesses that….
- Produce good levels of cash.
- Have a strong asset bases.
- Have borrowing under control.
- Are market leaders in something.
Normally these are firms that we have heard of, who produce products we use and consume a lot of. Consumer goods makers, supermarkets etc. Those with a dominant position. Who have a presence in our lives in some way.
In terms of what to invest in here are some ideas that would be worthy of consideration in any investment portfolio. These are mainly American.
$V Visa $UL Unilever $AAPL Apple $PEP PepsiCo $KO Coca-Cola $MA Mastercard $MSFT Microsoft $KHC Kraft Heinz $PG Procter & Gamble $JNJ Johnson & Johnson.
Go check out some of these and you’ll soon work out what the UK or EU businesses are.
With many of the modern platforms you can get access to some of these shares for a tiny minimum investment. Which means any of us can start now to make decisions that will affect our future.
Investing for income. Income that we don’t have to trade our life for, income that once paid is ours to keep forever makes more sense now than it ever has. And it’s always made good sense.
When you are ready to get a shimmy on with some of this. I am booking Autumn Money Workshops at your workplace. Get in touch and we can book yours.