When I ask people why they are investing, I often hear common reasons like returns, growth, assets, freedom, and even fun.
While these are valid goals, they miss the most important reason to invest: income.
Investing for income is the true solution to remove money stress and provide a fun retirement, whenever that may come. In this blog post, we’ll explore the common reasons people invest and discuss why shifting your focus to generating income is crucial for a successful financial future.
The Common Reasons People Invest
Many people have a general idea of why they’re investing, but often their reasons don’t fully align with their long-term financial goals.
Here’s a closer look at the typical motivations:
Returns: People often focus on getting high returns from their investments, believing that the more their investments grow, the better their financial situation will be. While returns are important, they are just one piece of the puzzle. High returns don’t necessarily translate into sustainable, reliable income.
Growth: Another common reason is the desire for growth. People invest in assets that they believe will increase in value over time, like stocks or real estate. However, growth is only beneficial if it can eventually be converted into income. A paper gain doesn’t pay the bills; you need cash flow.
Assets: Some investors focus on accumulating assets like property, stocks, or even art. While building assets is a part of wealth creation, the real question is: What are these assets doing for you? If they’re not generating income, they might be more of a liability than an advantage.
Freedom: Many see investing as a path to financial freedom, which it certainly can be. However, freedom is more than just a number in your bank account or a list of assets. True financial freedom comes from having a steady stream of income that covers your expenses without having to sell off your hard-earned assets.
Fun: Some people invest for the thrill of it—the excitement of the stock market, the enjoyment of flipping properties, or the satisfaction of building a collection. While there’s nothing wrong with having fun, treating investing like a hobby rather than a strategy for generating income can lead to missed opportunities and, potentially, financial stress in the future.
The Real Reason You Should Be Investing: Income
While the reasons above are all valid in their own right, they overlook the most crucial aspect of investing—income. The primary goal of investing should be to generate a consistent and reliable income stream, which allows you to enjoy life now and in retirement, free from financial worries.
Why Income Matters More Than Returns or Growth
Income provides stability. Unlike growth or returns, which can fluctuate with the market, a steady income stream gives you peace of mind.
When your investments generate regular income—whether through dividends, interest, or rental income—you’re less dependent on market conditions. This regular cash flow can cover your living expenses, fund your hobbies, or allow you to reinvest for even greater returns.
Moreover, focusing on income helps you think long-term. Instead of getting caught up in the day-to-day volatility of the stock market or the real estate market, you’re more likely to adopt a patient, strategic approach that prioritizes sustainability over speculation.
Investing for Income: A Journey, Not a Destination
Investing for income is not a get-rich-quick scheme; it’s a journey that requires careful planning and consistent effort over time.
It starts with understanding where you are now, defining where you want to be in the future, and mapping out the steps needed to get there.
Define Your Income Goals: The first step is to determine the monthly income you need to live comfortably and without stress. Think about your ideal retirement or any future scenario where you want to maintain or even improve your current lifestyle. How much income will you need to achieve that?
Create a Roadmap: Once you know your income goals, you need to build a plan to achieve them. This could involve diversifying your investments into income-generating assets like dividend stocks, bonds, REITs, or rental properties. The key is to focus on assets that provide consistent cash flow rather than just potential appreciation.
Monitor and Adjust: Investing for income isn’t a set-and-forget strategy. You need to regularly review your investments to ensure they are performing as expected and make adjustments as necessary. This might involve rebalancing your portfolio, reinvesting dividends, or reallocating assets to optimise for income.
Optimising for income becomes more important the closer you get to retiring. When you rebalance your investments you have the opportunity to adjust fro income over growth in the later years of your plan.
Building Wealth Over Time: The Importance of a Plan
Investing for income also naturally ties into the broader concept of wealth-building. As you focus on generating income, you’re simultaneously growing your wealth.
This approach creates a positive feedback loop: the more income you generate, the more you can reinvest, and the more your wealth grows.
I have been working with several clients this year where there has been the need to spend more time adjusting their current asset mix, and reducing debt to a more sustainable loan-to-value ratio so that the portfolio produces more income. If that sounds like your scenario, be sure to claim your smart investor call with the link below.
The Power of Compounding Income
Reinvesting the income generated from your investments can have a compounding effect. You’ve heard me say this many times.
For example, reinvesting dividends from stocks or using rental income to pay off mortgage debt faster can significantly boost your overall wealth and income potential over time.
This strategy not only increases your net worth but also enhances your ability to generate even more income in the future.
Conclusion: Shift Your Focus to Investing for Income
It’s time to rethink your investment strategy. While there’s nothing wrong with aiming for high returns, growth, or even fun, these should not be the primary focus.
Instead, prioritise investing for income. This approach will provide you with the financial freedom, stability, and peace of mind to enjoy your life—both now and in retirement.
Remember, investing is a tool to achieve your life goals, not just a game of numbers. By focusing on generating income, you can build a robust financial foundation that supports the life you want to live.
Start by defining your income goals, creating a roadmap to achieve them, and committing to the journey. Only then can you ensure a stress-free and fun retirement, whenever that may come.
To schedule a Smart Investor Call and start the journey to plan your financial future, click the link here to find a time that works for you.