What is Portfolio Income?

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Portfolio income refers to the income generated through investment in securities. It also includes income received in the form of interest, capital gain or royalties. Portfolio income is considered to be a part of passive income by many. However many financial and investment experts like to differentiate between the two categories because portfolio income is a bit different.

Passive income requires minimal investment of time and resources whereas portfolio income requires an investment of your savings and it also requires both your time and expertise. If you yourself are not an expert then you may have to hire the services of an investment manager to invest for you. Whatever the case may be, portfolio income requires more investment of both time and resources as compared to passive income.

Generating portfolio income is not an entirely passive activity. It requires knowledge of the investment market, how the market is moving, which stocks to invest in and a lot of other factors. Which is why it is categorized by many experts as an entirely different income-generating category.

Many investors and experts who classify it as passive income do so because now you have got robot investment applications that can help you invest intelligently. Making the whole process easier and less time-consuming.

What are Portfolio Income generating methods?

Portfolio income can be generated by investing in securities. Let us now look at some of the ways to generate portfolio income.

Investment in Stocks

The first method that comes into the mind of generating portfolio income is an investment in stocks. Although this may be the first method, it is a tricky one. In order to invest in stocks, one must have profound knowledge of the stock market. You cannot just invest in any stock you like, neither can you invest in stocks that at the moment are showing good performance.

Investing in stocks requires a proper strategy, without which it would simply be like shooting in the dark. Investment in stocks is therefore an option for those who already have knowledge of the stock market.

Investment in Index Funds

Index funds are basically mutual funds that have a portfolio that mirrors an index. Okay, that may be too technical so let us break this down.

What is a mutual fund?

A mutual fund is a fund that is created by many different people pooling their money, as much as they can, in order to invest in securities such as shares and bonds.

What is an index fund?

An index fund refers to a mutual fund that has got a portfolio that mirrors an index like the S&P 500 or Dow Jones index or any other index for that matter.

What makes index funds ideal for the common person?

Since an index fund has a portfolio that tracks an index, this means that the index will go up when the underlying index goes up and it will go down when its underlying index goes down. So you can see that if you invested in individual stocks, you would be vulnerable to the movements of that particular stock but by investing in index funds, you can mitigate the risk that individual stocks are exposed to and instead you can effortlessly track the market.

Index funds are ideal for retirement funds and for individuals looking to set up passive income streams. In fact indexing, itself is termed as passive investment management because it is an extremely low maintenance investment strategy. You simply have to construct your portfolio in such a manner that it reflects the index you are trying to recreate.

Investment in REITs

REITs stands for Real Estate Investment Trust, REITs are listed in the stock exchange and their shares can be traded like any other company. REITs are however not like your average company. REITs are specialised trusts that invest in rental or industrial real estate.

The revenue generated from the real estate owned by a REIT has to be used in the following percentages

10% for the maintenance of properties and reinvestment
90% payout to the shareholders

Because REITs are required to have such a high payout rate, they make for good investment options. Especially for individual investors with little or no experience of investment.

Furthermore, REITs are a good portfolio diversified even for seasoned investors because REITs are neither your typical company nor are they bonds. They classify as a separate class of assets on their own. Even though investment into REITs is through shares but investment in REITs is essentially an investment into real estate.

Quick Portfolio Investment Tips

Invest in high dividend-paying stocks: Scope out the stock market for stocks that have a history of paying high dividends and then invest in those stocks. This will make sure that you receive a sizable amount of dividends each year.
Invest in high growth stocks if you are looking for capital gains: If dividends are not your primary target but capital gains on the price movement is then try to scope out stocks that are showing promising growth. Amazon and Tesla are two of the hottest stocks at the moment.
Dividend Reinvestment: In order to exponentially increase your portfolio income, reinvest whatever dividends you receive back. This means that you should use the dividend income to buy the stocks and increase the size of your portfolio.
Diversification: Make sure that you construct a diversified portfolio. Do not put all of your eggs into one basket. Invest in different sectors, different securities and different markets so that if one sector suffers a loss, your investment won`t go down in one go.