What Is Considered Investment Income?

 

Did you know that more Americans than ever before are invested in the stock market? Making investments is an important part of financing because it can help with retirement and paying off debts.

If you don’t currently make an investment income, you might not know where to start. Although stocks are common, they aren’t the only investment vehicle.

Keep reading to learn more about investment income.

What Is Investment Income?

Investment income refers to money received through capital gains, interest payments, or dividends from the sale of stocks, among other assets. Any additional profit made through an investment vehicle is considered investment income.

For example, unique profits from the sale of fine wine or gold are also investment income.

Sources of Investment Income

Investment financial gains come in different forms. Some securities can provide dividends and capital gains while others provide both capital gains and interest payments.

A well-balanced portfolio is one that combines various security types. Some of the most common income sources include:

Stocks

Stocks, otherwise known as equities, represent a fraction of the ownership of a company. You can generate income by purchasing stocks through capital gains and dividends.

To make investment income with stocks, you’ll sell the stock to another investor.

Bonds

Bonds are shares of corporate or government debt and represent the face value of the debt issued by an entity. The in-debt entity will make fixed-interest payments on the bond during its lifetime.

Once the bond expires, the entity pays the bondholder back for the value of the bond.

Real Estate

You can also make investment income through real estate. Offices, homes, holiday lodges, and other buildings generate income through capital gains.

There are some circumstances where profits, like rental payments, can be considered investment income but it is most likely considered earned income.

Funds

Funds are a portfolio of assets that can include exchange-traded funds (ETFs) and mutual funds. A fund holds a group of assets like bonds, real estate, and stocks.

Investors can buy a percentage of a fund rather than the entire thing. If you have a fund in the form of shares, you receive a proportional share of the fund’s returns.

Shareholders are paid based on interest, dividends, and capital gains.

Annuities

An annuity contract is made with an insurance company. In general, you pay upfront for this contract and the insurance company makes regular payments to you plus a fixed rate of return.

However, there are different types of annuities that you can choose from.

This is a common investment vehicle to generate future income in the form of interest payments.

Making Investment Income

Investment income is money generated in exchange for ownership. This is money you make by owning an asset and selling it.

The most common sources of investment income are stocks, bonds, real estate, funds, and annuities.

By knowing a little bit about each of them, you can decide how you want to make an investment income. For more tips on finance and investing, check out the other posts on our blog.