Avoid These Three Income Investing Pitfalls

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When an income strategy is done right, it creates valuable and long-lasting peace of mind. After all, most investors start thinking about investment income for their retirement when they no longer have a steady paycheck.

That’s a huge transition for most people. As someone who has spent a good part of my career developing sound income strategies for investors, I’ve heard sighs of relief from recent retirees when they realize that their dividends and bond coupons can bridge their income gap and keep their lifestyle intact.

Investing for income is not foolproof. In fact, there’s a lot of ways to get it wrong! There are three pitfalls that I most commonly see income investors fall victim to. I hope illustrating them will help you avoid their damaging effects on your investment portfolio.

1. Limiting your investment choices

Most income investors fail to properly diversify. They think income investing consists of stodgy dividend-paying stocks and some bonds thrown in for stability. If that’s you, get familiar with the full menu of income investment options. They include real estate investment trusts (REITs), master limited partnerships (MLPs), preferred stocks, option strategies, closed-end funds, and merger arbitrage, to name a few. Opening yourself up to a wider range of income investment opportunities will present you with attractive options to diversify. If you stick to just one or two categories, you may be either taking on more risk than you want – or missing out on returns you could otherwise be achieving.