Guide to Dependable Income Investing

Key Principles of Income Investing

  1. Start as early as possible
  2. Select funds carefully to hold long term - our App makes it easy
  3. Diversify your portfolio both by sector and by geography
  4. Understand your risk tolerance
  5. Take advantage of tax-advantaged accounts
  6. Invest in income producing exchange traded funds with low volatility, sustainable/stable yields and some upside potential. Preferably those that track an index like the Standard and Poors Index
  7. Regularly review and rebalance your portfolio
  8. Get help from the income investing community

Quick Tip

Invest consistently - if possible - by dollar cost averaging into good funds that have dropped in value and are on sale. Patience is your greatest asset when it comes to income investing.

Fund Selection Factors

  1. Dividend yield stability should be a top priority because you want consistent, predictable income without surprises. A fund with a history of reliable payouts is critical
  2. Yield is important since you are looking for higher returns in the form of dividends, provided it doesn't come at the cost of excessive risk
  3. Low volatility. Capital preservation means avoiding large swings in a fund's value. Low volatility is crucial to ensure your principal investment remains relatively stable over time
  4. For capital preservation look at how well the fund has maintained or grown its value over time. A fund with a strong capital history is less likely to expose your principal to significant risk
  5. Fund history. A long and positive fund history provides additional confidence that the fund has navigated various market conditions while maintaining stability in income and capital
  6. Frequency of dividend distributions matters. More frequent payouts (e.g., weekly or monthly vs. quarterly) provide regular cash flow and better compounding
  7. Overall risk. Understanding the overall risk level of the fund is essential for capital preservation. Lower risk funds tend to have steadier performance, which aligns with income stability
  8. Sector diversification ranks a little lower in importance since your primary concern is the fund's ability to deliver income and protect capital. However, it can still mitigate the risk of sector-specific downturns impacting the fund's performance
  9. Geographic diversification can hedge against country-specific risks, which contributes to both income reliability and capital protection
  10. Lower management and fund fees preserve a larger portion of your income. High fees (MER) can erode your returns, so this factor should be considered when focusing on immediate income
  11. Types of underlying assets. The quality and types of underlying assets (e.g., bonds, stocks, real estate) impact both yield and capital stability. Higher quality assets tend to be more stable
  12. Larger funds may offer better liquidity and stability, which can be important for capital preservation. However, this is a secondary consideration compared to the above factors
  13. Options to generate income. If a fund uses options to generate income or hedge risk, this expertise can enhance income and reduce volatility
  14. How a fund writes its options is important for capital preservation. In-the-money options get more income but giveup more capital upside. Out-of-the-money options get less income but retain more capital upside
  15. Size of the fund management company is typically less important for immediate income and capital preservation, although larger firms may offer more resources and stability