Income

Lesson

Income investing focuses on generating a steady income stream for investors through dividends, interest, and other forms of cash flow. This style is trendy among retirees and conservative investors who prioritize preserving capital and receiving regular income over aggressive growth.

Practice Question #1

Which of the following investments is most closely associated with income investing?

A) High-growth technology stocks

B) Dividend-paying utility stocks

C) Speculative small-cap stocks

D) Cryptocurrencies

Select an option above to see an explanation here.

A) High-growth technology stocks are typically associated with growth investing. B) Dividend-paying utility stocks provide a steady income stream, making them a popular choice for income investors. C) Speculative small-cap stocks are typically associated with aggressive growth strategies. D) Cryptocurrencies are highly speculative and do not provide a steady income stream.

Terms

Income investing:: A strategy that focuses on generating a steady income stream through dividends, interest, and other forms of cash flow.

Practice Question #2

What is the primary goal of income investing?

A) Capital appreciation

B) Capital preservation and generating a steady income stream

C) Speculative gains

D) Beating the market

Select an option above to see an explanation here.

A) Capital appreciation is the primary goal of growth investing. B) Income investing focuses on preserving capital and generating a steady income stream. C) Speculative gains are not the primary goal of income investing. D) Beating the market is not the primary goal of income investing.

Do Not Confuse With

Growth investing:: A strategy focusing on investing in companies with high growth potential, often sacrificing current income for future capital appreciation.
Value investing:: A strategy that seeks to identify undervalued stocks with strong fundamentals, often paying higher dividends than growth stocks.

Practice Question #3

Which of the following investments is NOT typically associated with income investing?

A) Bonds

B) Preferred stocks

C) REITs

D) IPOs (Initial Public Offerings)

Select an option above to see an explanation here.

A) Bonds are a common income investment, as they pay interest to bondholders. B) Preferred stocks pay a fixed dividend and are often included in income portfolios. C) REITs own and manage income-producing real estate properties and distribute income to shareholders. D) IPOs are typically associated with growth investing, as they involve investing in newly public companies with the potential for capital appreciation.

Historical Example

In the early 20th century, many conservative investors focused on income investing by purchasing bonds and dividend-paying stocks. This strategy provided a steady income stream during the Great Depression, when many growth-oriented investments suffered significant losses.

Practice Question #4

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Example Series 65 Example Practice Question

Real-World Example

A retired couple may invest in a diversified portfolio of dividend-paying stocks, bonds, and REITs to generate a steady income stream to cover their living expenses without depleting their principal investment.