How to Buy a Diversified Stock Income Plan
Original post by Victoria Duff of Demand Media
There are two main ways to provide yourself with a diversified portfolio of income stocks. Income stocks are stocks that pay dividends, or preferred stocks. The first way to buy such a portfolio is to find a good diversified mutual fund that specializes in dividend-paying and preferred stocks. The other way is to buy the stocks yourself, or with the help of a broker or financial planner. Mutual funds pay out a blend of dividends received. If you purchase the stocks yourself you will directly receive the dividend checks as they are paid.
Make a list of priorities and goals you have for your diversified stock income portfolio. This should include whether you will need to receive more income at certain times of the year, or whether a dependable monthly amount is suitable. If you intend to build the portfolio over years, or are trying to create income to replace what you used to receive from another source, is also important.
Investigate the mutual funds that specialize in income stocks. Look at their history of returns over the past five years, at least. Consider their policies on payout of income and check a mutual fund rating agency, such as Morningstar, to see the fund's risk level. Most importantly, check to see the fund's fee schedule to make sure you are not paying high fees.
Hire a good financial planner or broker to help you make your decision. Interview a few of them first -- it shouldn't cost anything to hear what they have to say about their services. Financial planners deal with mutual funds, but can help you plan a stock portfolio. Stockbrokers deal with both stocks and mutual funds.
Get a second opinion before you commit money, particularly if you are going to be dependent on the income. Ask your accountant, estate or tax attorney or even a friend who knows about investments. If you know very little about investments, ask as many people for their opinions as you feel necessary -- be wary of those who talk about great riches gained through trading stocks.
Invest your money in stages. This process protects you from dumping all your money into the market at exactly the wrong time, or discovering later that your choice of mutual funds was unfortunate.
Tips & Warnings
- If you are not quite sure what a diversified portfolio is, it is one that has approximately equal holdings in each of several different industries. The goal of a diversified portfolio is to lessen the risk of loss if one particular industry suffers an economic setback, as autos tend to do during a recession.
- CNN Money; An Income Plan That's Built To Last; Walter Updegrave; April 2007
- Investment News; Singing The Praises Of Dividend Strategies; Bruce Kelly; June 2003
About the Author
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.
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