Income investing is when one invests to generate recurring long-term income while preserving capital. As a strategy, income investors tend to be on the lower-risk side of the investment spectrum. 

Investors who covet this investing strategy accept lower rates of return in exchange for higher safety and stability. Income investing is commonly incorporated into the portfolios of middle-aged and older investors. 

This contrasts with young investors who are expected to work for decades before they retire. These investors often favor significantly riskier growth investing, which can also give them the potential for higher returns.

However, whether you prefer growth or income investing is typically not an either-or proposition. Instead, it’s about how much to allocate to each. 

The answer to that question comes down to several individual factors. Collectively, these items are known as your Investor Profile.

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Investor Profile

What type of investor are you? It’s a simple question, but it isn’t necessarily an easy answer. And since everyone is different, my answer will likely differ from yours.

You’ll need to look at your investor profile to arrive at the answer. 

An investor profile defines the level of investment risk you’re willing to accept, the suitable investments for you, and the allocations of each to your portfolio.

The factors that make up your investor profile include the following:

  • Investment objectives / Financial goals
  • Standard of living expectations in retirement
  • Time horizon
  • Life expectancy
  • Current age
  • Risk tolerance
  • Return expectations
  • Current financial situation

Most financial advisors will give you a list of questions to answer to arrive at an answer. If you simply Google “investor profile,” you’ll find links to numerous quizzes and questionnaires. 

These questionnaires aim to determine if you are a conservative, moderate, or aggressive (or some subcategory of the three) investor.

Just keep in mind that your investor profile isn’t static. As things change, your profile and investment strategies will change. Financial advisors generally recommend having less risky investments and safer income investments in your portfolio as you get closer to retirement.

Risk-Return Spectrum

Once you know what type of investor you are, you can now look to allocate investment money accordingly. Below is just one of the countless variations of an investment plan that traditional financial advisors might recommend.

Income Investing, Income Investing Is Making A Comeback

Minimal Risk Investors

Minimal-risk investors have little to no tolerance for risk. Their primary focus is capital preservation. They are OK with smaller returns as long as they are reasonably sure their capital is protected. These people tend to have low-risk tolerances or short timeframes before they need access to their capital.

Conservative Investors 

Conservative investors value cash flow over capital appreciation. They have a low-risk tolerance and can only tolerate small short-term fluctuations in value. The potential for small losses is acceptable in return for the potential for modest returns, but more considerable losses are not palatable. 

Moderately Conservative Investors

Moderately conservative investors are still focused on capital preservation and income investing. However, they can tolerate slightly more risk with market conditions. 

They won’t take heavy positions in high-risk investments as capital appreciation is not their priority. Nevertheless, the opportunity for capital gains is intriguing, so equities make up a minority position in their portfolio.

Balanced Investor

Balanced investors are moderates looking for a balanced return between high-risk equities and lower-risk income investments. They tend to have a medium-term time horizon and can accept moderate losses in return for the potential for moderate gains.

Growth Investors

Growth investors have a high risk tolerance. They are willing to risk losing significant amounts of capital in exchange for the opportunity to maximize returns. They can tolerate considerable fluctuations in value and tend to have longer time horizons before needing access to their capital. Growth investors typically have little to no need for recurrent income. Therefore, these investors lean towards growth stocks, much more than less risky dividend-paying blue-chip stocks. 

Aggressive Growth Investors

Aggressive growth investors have very high-risk tolerances. They are willing to accept severe fluctuations and sustained losses. They have long time horizons and no need for current income. It’s not uncommon for these investors to be young (20s and 30s) and have large incomes outside their investments.

Aggressive investors have equities in their portfolios but tend to invest in hedge funds and speculative assets like venture capital, cryptocurrency, commodity futures, etc.

Fixed Income Investing vs. Variable Income Investing

If you’re like most people, you’ll have some income investments in your portfolio. As you age, the percentage of your portfolio made up of income investments will grow.  

Therefore, you should know the difference between fixed-income and variable-income investments. 

Fixed-income investments pay a prescribed amount of income on a regular schedule. Additionally, fixed-income investments often have fixed interest rates that they pay. 

A certificate of deposit (CD) and a money market fund are examples of fixed-rate investments. However, bonds are the most common type of fixed-rate income investment. 


A bond is an investment vehicle in which one loans money to an entity in return for a promise to pay back the principal and interest. The three most common types of bonds you will encounter are:

Treasury Bonds

Treasury bonds are government bonds issued by the United States Treasury Department. When you purchase T-bonds, you are loaning the Federal Government your money. The family of Treasuries the government offers are T-bonds (20 or 30 years maturities), T-notes (maturities range from 2-10 years), and T-bills (maturity range of four weeks to one year).

Municipal Bonds

Municipal bonds are debt securities, but state and local governments issue these. 

Corporate Bonds

Corporate bonds are debt securities issued by corporations.

Variable Income Investing

Variable income investments produce income that is not fixed in amount or timing. 

While a bond might pay a fixed amount each month, a variable income investment produces different amounts that can vary due to the future performance of the investment. 

Variable-income investments have the potential for higher returns than fixed-income investments, but many also have higher risks. 

Dividend stocks and mutual funds are examples of higher-risk variable income investments, while multifamily real estate is an example of a lower-risk variable income investment

Five Reasons Why Investors Seek Income

Income investing has many compelling features. Below are five reasons someone would want to add an income strategy to their investment portfolio.


Fixed-income securities (bonds) have been an essential portfolio component for many reasons, including their low correlation to stocks. For many investors, when stocks were up, bonds were down. A balanced asset allocation is crucial to a diversified investing strategy. 


Bonds are also known as a low-volatility asset class. Having them in your portfolio alongside equities can help smooth out some of the stock market’s volatility.


For most people, their only source of income is their job. Developing passive income streams that aren’t dependent on one’s labor provides security. Those passive investments can supplement unexpected expenses, prolonged illnesses, or lifestyle decisions like switching from full-time to part-time work.

Fund Education or Other Large Expenditures

For those with high school-age children, college is just around the corner. Some will have well-funded college savings plans, and others will not. Income investments can supplement college expenses. Many retirement accounts allow you to withdraw income without penalty to fund those expenses.

Supplement Retirement

Without a drastic decline in one’s lifestyle, most people will not be able to survive on social security alone. That’s why it’s imperative to invest in your future. Some people are comfortable with consuming their nest egg over time. They will draw down their accounts by withdrawing funds regularly to fund their retirement.

However, if you look at professional financial plans, most call for an investor to have the bulk of their assets in income investments by the time they retire. Having recurrent income streams to fund your retirement protects one’s capital from unexpected expenses and leaves a legacy for future generations.

The Disruption of Traditional Investment Plans

Suppose you look back at the graphic presented earlier in this article. In that case, you’ll notice that regardless of your investor profile, the financial advice was to maintain an investment portfolio composed of two categories: Fixed Income and Equities.

That means stocks and bonds. Indeed, the proportion of each varies depending on your investor profile, but based on past performance, that has been the advice historically. And for years, that advice was sound. 

From 1980 through 1999, the S&P 500 produced a 13.3% annualized rate of return. Unfortunately, the subsequent corresponding period of 2000 through 2019 only yielded a paltry 4.8% annualized rate of return.

Sadly, the stock market has not been as stable or profitable as it was in the 1980s and 1990s. 

As for the bond market, the story is similar.

Income Investing, Income Investing Is Making A Comeback

With depressed returns from equities and fixed-income investments, traditional financial advice has not fared well over the last twenty years. 

How Real Estate Saved The Traditional Financial Plan

Real estate has proven to be the best investment over the last twenty years. And research has shown that adding real estate to the traditional stock/bond portfolio does three things:

  • Increases returns
  • Decreases risk
  • Increases stability

I’ve discussed this in detail and presented the research in two articles and a white paper.

Multifamily real estate provides high returns in a lower-risk asset class. It has produced recurrent income that exceeds the yields from bonds.

For that reason, many income investors have replaced part or all of their bond investments with multifamily real estate. 

Bonds have inflation risk that real estate doesn’t have. Since bonds have fixed rates, inflation that exceeds those rates leaves investors losing purchasing power.

Alternatively, real estate acts as a hedge against inflation. Since inflation leads to higher rents, real estate returns have a long history of outpacing inflation. 

Income Investing, Income Investing Is Making A Comeback