What is Investment Income?
Investment income is any type of financial gains that are realized from any type of investment made by an individual or business. In order to have this type of income, the investment must generate revenue above and beyond the original assets used by the investor to secure the asset. It may be in the form of interest, dividend payment issued in connection with stock ownership, or any other type of capital gains that are realized from any type of security.
One of the easiest ways to understand investment income is to look at the interest that is accrued on simple investments, such as savings accounts. In return for opening the account with a given bank, the customer earns interest on the balance. Depending on the terms and conditions that apply, the customer may earn income in the form of interest quarterly, semiannually, or annually on the funds he or she chooses to place into the account.
The same is true for a wide range of investing opportunities. When finances are used to invest in such opportunities as futures options, stocks, or bond funds, the expectation is that the investment will begin to earn a return of some type. That return, or the amount earned above and beyond the initial purchase price, is considered investment income.
Planning for the future with a retirement plan of some type is also possible due to the accrual of investment income. Part of the process of responsible retirement fund management is to invest the monies collected for the fund in investments that are likely to generate a reasonable return. The fund manager may include several different types of investments in the overall retirement fund planning, such as a 401(k), and Exchange Traded Fund or ETF, or other types of mutual funds. In all situations, the goal is to increase the value of the investment portfolio that feeds the retirement plan, thereby ensuring that all plan participants have a degree of financial security after retiring from the work force.
It is possible for just about everyone to earn this type of income on some level. For people who are very conservative with their investment activity, the smaller but consistent interest earned on savings accounts and certificates of deposit can be viewed as income earned from an investment. People who buy and sell stocks, invest in bond issues, or engage in currency trading do so with the anticipation of earning income on it. Even people who participate in an employee-sponsored retirement plan or pension are indirectly engaged in the task of generating investment income.
Subway11- I prefer using real estate because it is an asset that produces investment income that I can also use.
I currently own a beachfront vacation condo with sweeping ocean views. I simply rent in part of the time and it pays for my bills and then I get to enjoy it the rest of the year.
If I rented it full time all year I would make a nice profit but then I would not get to enjoy it.
Income producing investments are great to have because the money that you receive every month helps to offset your other expenses.
Many people use real estate as a means of generating investment income which allows the tenant to fund your mortgage and pay off your properties.
I usually have one outstanding mortgage at a time so that if the tenant does not pay, it will not be a problem on my end.
SauteePan-That is a great fixed income investment. Another fixed income investments are annuities. Annuities are investments made with an insurance company.
Here the insurance company offers you a guaranteed rate of return for the first few years of the annuity along with a minimum interest rate for the remainder of the annuity.
The insurance company pays equal monthly installments to you in the form of income. This income however, can not be withdrawn until you reach 59 1/2.
At retirement the annuity is taxed at your current income tax bracket. An insurance company can prepare a hypothetical that will give you an idea of how your money will fare within the five or seven year window.
GreenWeaver-Many people look for income investing because they want to have additional streams of income for retirement purposes.
Investment for income is a smart strategy because the income gets reinvested into larger shares and your money grows exponentially. Income producing investments like municipal bonds are an excellent way to grow your income portfolio tax free.
Municipal bonds are tax free because you are investing in state and local governments and the government rewards you with the offer of tax free income.
For example, if you were investing $500,000 in municipal bonds that yielded a 5% yield over the life of the bond, you would receive two biannual payments of $12,500 tax free for a total of $25,000 a year.
Investment income that is tax free like that really goes far especially when you are in retirement.
Anon124514- I believe that a sale of an asset will fall under capital gains taxes. So a profit from the sale of a home for example, is taxable if the profit exceeds $250,000 for a single homeowner and $500,000 for a married couple.
For the sale of a security like a stock generally you would pay capital gains taxes of 15%, but I believe that the rates were raised to 20%. I hope that answers your questions.
does investment income also mean the income from sale of asset?
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