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How To Define Your Investment Strategy

Income Strategy

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If you need income from your investments - but don't want to actually liquidate your investments -- which assets you choose will depend on the time horizon for which you are investing. Do you need the maximum amount of income just for a period of a year or two, or for many years, perhaps indefinitely?

Short-Term Income Strategy

To maximize your income in the short-run without risking losing principal, look for investments that provide the most for your money with little risk, low fees and high liquidity (in case you need to liquidate some assets for additional income). Investments that fit the bill include:

  • Money market accounts: Money market accounts will generate some income and also keep your principal very safe.
  • CDs (Certificates of Deposit): You can purchase multiple CDs with different maturity dates so that you have a set amount of income that you can rely on. For example, if you purchase a three, six, and twelve month CD, you will have income at the end of each of those time periods.
  • United States treasury bills (T-Bills): T-bills will generate income based on their time to maturity and will also be exempt from state and local income taxes.
  • High-Grade Corporate bonds: Buying high-grade corporate bonds will provide a higher return than government bonds will, but will expose you to the risk of the company that backs the bond defaulting.

Long-Term Income Strategy

If you are investing for the long-run - say five years or more - but still need income, consider income-producing investments such as United States treasuries, mutual funds composed of top notch corporate bonds, and "blue-chip" stocks that have a history of paying steady dividends. Depending on your risk tolerance and how long you need your money to last, you should also consider growth stocks for at least a portion of your investments to help your portfolio grow in the long run.


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