One of the lessons that many have learned from the recent recession is the importance of creating income diversity. Income diversity involves cultivating more than one income stream so that if one source of revenue in your personal economy takes a hit, your entire financial well being isn’t destroyed. One way to begin cultivating another source of revenue is to engage in income investing.

What is Income Investing?

The main goal of income investing is to build up a regular source of income through carefully thought out investments. During tough economic times, your income investments may provide less, but if you have chosen your investments well, the flow will not stop completely.

With income investing, you receive regular cash payments monthly, quarterly or semi-annually, depending on how the investment is set up. There are two main types of investment usually used when building a portfolio with an eye toward income investing:

• Bonds: Bonds are basically loans you make to some organization. You can make these loans to companies or governments. The federal government offers Treasuries, and you can invest in municipal bonds on a more local level. It is also possible to invest in foreign bonds. When you invest in bonds, you receive regular interest payments from the organization. When the bond matures, you get the principal back as well, and you can re-invest it if you wish. The main risk associated with bonds is that the organization can default. When using bonds for income investing, it is often a good idea to make sure that many of them are from a source considered stable, with little risk of default.
• Dividend Stocks: Other options for income investing are dividend stocks. A dividend is a payment that some companies make to shareholders on a regular schedule. This is a cash payment, in the form of a portion of company profits, separate from earnings you receive as a result of increased share price. You receive a payout based on how many shares of the company you hold. Companies can increase or decrease their dividend payout according to circumstances, though. When looking for dividend stocks to add to your income investment portfolio, it is a good idea to look for a stable, established company that have a good track record of earnings and good management.

Person to person lending is also becoming a viable option for income investing, since you receive regular payments from borrowers. However, you do have to be concerned that the individuals to whom you are lending money will default.

The advantage of income investing is that even during times of recession, you still have a revenue source that can help you with your budgeting. With bonds, the interest payment doesn’t diminish, since the interest rate remains the same. While dividends might be cut in some companies during a recession, there is still usually a payout, so you still have income.

Getting started, though, requires some significant capital. In order to invest enough money to receive a large enough payout in interest or dividends, you might need to put in quite a bit of money. With dividend stocks, it is possible to use dollar cost averaging to begin building up your shares, but it may take some time to acquire enough shares in a company for the dividend payment to provide you with a solid source of income. It is also possible to invest regularly in smaller denomination bonds as they can, with the smaller interest payments eventually combining to create a large enough income stream.

Some prefer to build up a cash reserve in a high yield savings account and then invest in a combination of bonds and dividend stocks all at once. However you decide to proceed, though, it can be a good move to begin building up an income generating investment portfolio, providing you with an income stream during tough times.

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