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How to Build an Income Investor Portfolio

The following four factors are essential to an income investor’s portfolio. These are Dividend growth, Diversification, Tax efficiency, and Return on capital. These factors can help you determine which types of stocks to buy. Below are some examples. Read on to find out how to build an income investor’s portfolio. But beware: not all stocks are created equal! It’s best to stick to dividend-growth stocks, and equities may not be your best bet.

Dividend growth

Dividend growth in income investor portfolios may provide a slight hedge against inflation, but it is important to consider the risk. The danger of dividend-growth-oriented investing is that you may miss out on a 7% monthly gain, which would equal zero over 64 years. Fortunately, this risk can be mitigated by diversifying your portfolio. In fact, studies show that investing in dividend-paying companies may actually boost your portfolio’s overall return.

Dividend growth investing combines income investing with capital gains trading. Investors look for companies with a steady increase in stock prices, and then use these dividends to buy more of the company’s stock. The goal is to build a long-term value-oriented mindset. With this mindset, you can avoid the risk of trying to time the market. Dividend-paying companies offer better returns over time. For this reason, many investors opt for dividend growth stocks.

Tax efficiency

One of the key ways to invest in stocks is to use mutual funds that have a tax efficiency mandate. These funds generally have lower yields and turnover, and invest in growth stocks and companies that do not pay taxable dividends. Tax efficiency mutual funds work to offset gains over time by selling stocks at losses. They can also be more aggressive and diversify across several different asset classes. But tax efficiency is only one of the factors to consider when choosing an investment portfolio.

To make the most of tax efficiency in an income investor portfolio, it is important to understand the dynamics of turnover, income, and capital gains. Income-oriented assets, like bonds, usually have low to moderate turnover. Municipal bonds are the most tax-efficient types of bonds because they are tax-free, and investment-grade corporate bonds are the least tax-efficient. It is important to understand the tax implications of holding different types of bonds in an income investor’s portfolio.


To make your portfolio more appealing, consider a variety of assets. While some will rise rapidly, others will decline steadily. The frontrunners in one year may become laggards in another. With this in mind, diversification is the key. And with today’s zero-commission exchanges, diversification is now easier than ever. Read on to learn more about the benefits of diversification and how to get started.

As with any investment, there is risk involved. While investing always involves some risk, diversification is an excellent way to protect your investment portfolio in the event that one investment fails. For example, if Cody makes money from four different clients, while Meredith makes money from one, her income would disappear in an instant. This would eat up much of her income, which is why it’s important to diversify an income investor portfolio.

Return of capital

To reap the maximum benefits from your mutual fund investment, you should make sure the total return of your investments exceeds the total cost of disbursements. If you purchase a mutual fund at $10 per share, for example, you will incur an initial cost basis of $ten. If you sell the position at $12, however, your cost basis will be higher at $2,200, or $1,800 per share. Those are the two different types of returns you will experience.

One of the most common misunderstandings among investors is the concept of return of capital. This is especially true for older investors, who have likely forgotten about it or never gave it much thought. However, return of capital is important because it reduces the adjusted cost basis of an investor’s investment, and subsequent returns will be taxable as capital gains. Those benefits are important to keep in mind if you invest in closed-end funds.

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