How to optimize your portfolio for cash flow with income investing
The stock market is often glamorized as a fast-paced, exciting means of growing wealth. Trading stocks on the open markets leads to huge payouts for the lucky few – but this investment approach also involves taking on an equally huge risk.
For investors focused on sustainability in the long term, the stock market may not be ideal. A strategy that minimizes risk is far more appropriate, especially if the end goal is to create a healthy stream of passive income. Income investing could be the answer for investors who want less risk in their portfolio, or who are working toward supplementing their existing income.
What Is Income Investing?
Income investing is an investment strategy focused on creating a portfolio that yields a regular “paycheck.” The goal is to create a stream of passive income from payouts and returns on owned assets. Income investing is ideal for later-stage investors who are less focused on growth and more interested in tactics that can sustain them into retirement and beyond.
Benefits and Risks of Income Investing
The most obvious benefit of a successful income investing strategy is the additional stream of passive income. While usually modest, this extra inflow of cash can be ideal to supplement a retiree’s fixed income.
Since the strategy inherently maximizes stability, investors can expect less volatility overall. Investments tend to be in industries essential to the economy, which are less subject to wild fluctuations in value. In addition to peace of mind, this can facilitate substantial capital growth over time.
There are, however, risks associated with every asset class and investment strategy. Inflation in particular can pose a challenge to any portfolio, as rising prices hurt purchasing power across the economy. In addition, economic downturns can cause companies to cut or suspend dividend payments and subsequently reduce the amount of passive income that’s being generated.
It is also worth noting that an income investing strategy doesn’t take advantage of compound interest like investing in the stock market does. That’s because most of the income it generates goes back into the investor’s wallet, rather than back into the market to redouble itself.
What Does an Income Investing Portfolio Look Like?
As mentioned, an income investing portfolio emphasizes less volatile assets that provide regular payouts. Here are some of the most common:
- Dividend-Paying Stocks: These are common or preferred stocks that pay a regular (ideally, increasing) dividend. Stock screening tools make it possible to quickly find companies that offer payouts on shares and also meet other criteria, like low volatility and reasonable valuations.
- Government and Corporate Bonds: A government bond functions as a low-risk loan from an investor to the government for a specified period of time in return for a small yield. Corporate bonds are similar, except the loan goes to a company rather than to the government. They carry a relatively higher risk than government bonds, but also have the potential to provide higher yields.
- Mutual Funds and/or Interest-Bearing Accounts: Money market mutual funds provide a stream of income that consists of dividends and interest payments. Retail banks often provide a similar option with interest-bearing savings and money market accounts. These tend to be the lowest-risk options for income-focused investors.
- Real Estate: Investing in real estate is a reliable form of wealth generation that provides a constant stream of income, typically in the form of rental payments. Depending on the location and type of property, investors can also expect to benefit from certain tax advantages.
- Real Estate Investment Trusts (REITs): REITs are a great alternative for an investor who isn’t interested in being a landlord. It’s a type of security that trades like a stock and provides similar liquidity, while remaining a distinct asset class from bonds and equities.
How to Build an Income Investing Portfolio
The key to successful income investing is patience since this is a long-term strategy. It takes years to build a portfolio that is capable of generating a consistent income, let alone one that’s large enough to live on.
Prospective investors should consult qualified financial professionals and be prepared to be strict in their asset selection strategy. Impulsive investments are unlikely to stand the test of time or the pressure of market forces. A healthy income investing portfolio is built on due diligence and diversification.
Adding Franchise Investing to Your Income-Focused Portfolio
Although franchise investing has been around for years, it’s a relatively new addition to the landscape of low-volatility assets available to retail investors. The benefits are substantial, including franchising’s ability to resist inflation – but in the past, this was an asset class reserved for either the ultra-wealthy or those interested in full-time ownership.
Note reference to “in the past.” Now, FranShares is bringing passive franchise investing to all investors using a unique fractionalized approach.
How It Works
You may already be familiar with fractionalized investing, which allows pools of individuals to invest in expensive assets like vacation homes, private jets, and racehorses. At FranShares, we’ve taken this method of ownership and applied it to franchise investing.
Our approach allows both accredited and non-accredited investors from all walks of life to purchase partial ownership in a portfolio of pre-vetted, managed franchise locations with high return potential.
We combine deep industry expertise with a zero-fee approach to ensure our investors maximize their long-term returns – without the risk of losing their shirts. Our mission is to help investors reap the benefits of franchise investing with a unique business model that offers:
- Passive Income
Our best-in-class franchise management team ensures that our investors enjoy truly passive income through quarterly distributions without having to manage the franchise. In other words, we do the legwork while you sit back and enjoy the returns.
- Flexible Capital Commitment
We offer accredited and non-accredited investors the opportunity to invest for as little as $500, although our model also appeals to ultra-high-net-worth investors. Our platform allows people of all walks of life to become fractional franchise owners with the ability to invest the right amount of capital for their own personal circumstances.
- High-Yield Diversification
Franchises are real assets with little or no correlation to the overall stock market; thus, they act as a hedge against inflation and are not subject to the same level of volatility. Furthermore, our fractionalized ownership approach allows investors to fully diversify their franchise holdings. Owning a portfolio of franchises across different geographies and industries creates an effective buffer against challenges that may shut down a single franchise or location, such as service franchises closing temporarily during pandemic lockdowns.
- Low Risk
FranShares only invests in recession-resistant franchises with a track record of success to minimize volatility and give our investors peace of mind. We perform all due diligence and thoroughly vet each franchise partner for strong brand recognition and market positioning.
The franchise industry is regulated by the FTC; and as a registered investment vehicle, FranShares is also regulated by the SEC. The FTC requires full disclosure of each franchisee’s background, financials, and performance. In addition, we provide our investors with reporting and regulatory compliance documentation above and beyond what those regulators require.
- Zero Fees
Traditional investment vehicles charge at least a 1 to 2 percent asset management fee, and that can significantly cut into your returns as an investor. But because FranShares participates in every fund, we are able to waive all platform fees and pass along those benefits to our investors. Our profits come from co-investment in franchise locations as well as brokerage commissions from the franchisor, not the fund. This approach preserves capital for our investors and also creates parity in the investment opportunity.
Get Started with FranShares
Your investment portfolio’s health is of critical importance, especially when you rely on it as a source of income, and diversification is key to this sustainability. A mixture of different assets is a proven way to reduce risk and hedge against potentially damaging market forces like inflation. Investing with FranShares offers a new way to augment a portfolio for income-focused investors.
If you’re interested in adding fractionalized franchises to your portfolio, getting started is easy. With a low-investment entry-point of $500, you can build a more diversified portfolio without sacrificing your time or managing a manager.
Ready to learn more? Read about fractional investing here, or get on our waitlist so you’ll know when our next fund becomes available.