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25. What is Income Investing

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In this lesson, students learned the importance of Income Investing. By employing the techniques of income investing, one can prepare themselves properly for retirement. Since income investing is the process of picking stable stocks and bonds that pay decent dividends and coupons, the investor can benefit from the cash flow that’s produced by these securities.

The first way income investing provides benefits to the investor is through liquidity. Since the investor will continually receive dividends or coupons, they then have the opportunity to reinvest that cash flow into the most undervalued asset each month. This compounding cash flow is truly the essence of investing like Warren Buffett. With an ever increasing cash flow, investors can take advantage of market conditions during spikes and valleys.

The second way income investing provides benefits to the investor is during retirement. Since most retirees may need to sell their investments in order to pay their monthly lifestyle expenses, income investing offers an alternative approach. Since the retiree will receive quarterly and semi annual payments from these types of investments, they will continue to have a steady cash flow to meet their lifestyle expenses. Although some retirees may need to pull from the principal, income investing will minimize that withdrawal.

In the end, Income Investing creates more cash flow for the individual employing the technique. It’s Warren Buffett’s opinion that purchasing dividend paying stocks is a very wise decision because of the continued and consistent cash flow that provides liquidity to reinvest your earnings.

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