Income investing in the stock market involves buying dividend stocks in order to get an income from your investment. Getting a cash flow from your investment is always a good thing to do considering cash flow is what we all need to survive in the world.
So, what in the world is income investing? Well many stocks pay out a small dividend to their shareholders. These stocks help the stock holder to benefit from a company that is making money.
So, by simply looking for a list of dividend paying stocks that are stable or growing companies there is a potential to make an income from it. There is just one major problem to this strategy, you need money to make money.
For instance say you want to make a minimum of $50,000 a year off of a dividend stock paying 5% a year, you would need at least $1,000,000 to be invested into that stock for you to do that, this is a lot of money, which means that you either need a stroke of luck, or you need to save up money for a long time.
So how can you possibly get around this? Is there any way to make a good income off of your investments in the stock market without already being rich? Well one way to drastically increase your income from the stock is by selling covered calls.
Instead of making 5% in a year off of dividends you may make 5% in a month with covered calls. Needless to say this can drastically increase your returns, but it does come with some added risk.
If you sell a covered call then you will be obligated to sell your stock at a specific price on or before a given date. So if you sell the $40 call on your stock and it goes up to $50 you would be forced to sell it at $40 missing a god chunk of the possible gain.
There is definately a downside to covered calls so they are not for everyone, but they can be a powerful way of increasing your returns on dividend paying stocks.
Tags: increasing returns when income investing, problem with dividend investing