WHAT IS CURRENT INCOME? (WITH EXAMPLES) - DUDAS - 2025

Current income is the regular series of cash flows that are usually received from investments, in the form of dividends, interest, rentals, premiums for written options and other similar sources of income, as opposed to those derived from the increase in income. asset value.

They describe a portfolio that contains mainly fixed income securities and first-class stocks that pay high dividends. A portfolio of current income provides a stable income to the holder of the portfolio.

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As such, a portfolio does not hold high-growth or opening stocks. Follow a relatively conservative investment strategy. Most commonly, current income portfolios are held by retirees and others looking for a modest, but still substantial, return with little risk.

Current income is associated with strategies that seek to identify investments that pay above-average dividends.

Investment portfolios across the risk spectrum can focus on investment strategies that pay high levels of current income.

What is current income?

Most people earn current income through wages from their employment, but investing in financial markets can also generate additional income, called investment income.

Some investment income is attributable to capital gains. However, income that is not the result of capital gains refers to current income from interest or dividends earned.

Investing in current income is a strategy that can provide investors with consistent long-term returns or to pay for short-term expenses.

Many portfolios focused on long-term current income are created for individuals looking to pay their short-term expenses and a potential long-term stable income for their retirement years.

To take advantage of current income benefits from a portfolio investment, investors can choose individual securities or managed mutual funds. Securities that pay current income may include stocks, bonds, or a combination of both.

Public sector

In the public or government sector, current income refers to income that generates an increase in cash in that sector, as a consequence of its current operations, without proceeding from the disposal of its assets.

They are income obtained periodically or regularly and do not immediately affect the patrimonial context of the State.

For example, income that comes from taxes, penalties and fines, income, and from the provision of services, but does not come from donations, fixed capital assets or intangible assets.

Investment types

-Investment in equity funds

Income funds are mutual funds or any other type of fund that seeks to generate an income stream for shareholders by investing in securities that offer dividends or interest payments.

The funds can contain bonds, preferred stocks, common stocks or even real estate investment trusts

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Dividend-paying stocks offer higher returns to investors, but generally with higher risks. As income-paying investments, securities combine income with return for an even higher total return.

In the stock market, investors will find that dividend-paying stocks are among the most established and mature. Dividend-paying stocks have constant income and earnings, with established commitments to a payout relationship.

Investment trusts

Real estate investment trusts are a superior investment option for investors seeking current income. These trusts must pay remuneration to investors based on the structuring of their funds.

Funds that include these securities are a great way to invest for current income. Funds can provide lower risk through diversification, with comparatively similar levels of return.

-Investment in fixed income funds

Debt income funds

Debt income securities and mutual funds offer an even broader universe of options for investors, as debt instruments are equivalent to paying a fixed income to investors.

Investors can invest in a variety of local and international government offerings. They also have access to corporate bonds, which pay coupons from countries around the world.

Debt income funds build on these offerings, providing diversified portfolios of investments that pay current income.

Target date funds and annuities

Investors looking for long-term investment funds that pay future steady streams of current income can also look for annuities and target-dated funds.

Annuities generally offer a consistent annuity payment after a specific date.

Examples

Equity investment funds

Within the traditional universe of equity capital investment funds, the “Snow Capital Dividend Plus” fund offers one of the highest total returns.

With an investment of approximately 80% of the portfolio in equities, the fund reports a total return per year of 11.30%, with a 12-month dividend yield of 13.27%.

Fixed income bonds

Higher returns are generally accompanied by greater exposure to risk. The safest of safes is the United States Treasury securities.

The highest interest rates come from the 30-year Treasury bond, which yields around 2.75%. If held to maturity, it is a risk-free transaction.

If it has to be sold before its expiration, it can change the story. Long-maturing bonds are especially sensitive to changes in interest rates. If rates rise substantially during the intervening years, the long-term bond could fall sharply.

When rates shot up in 1994, the 30-year bond fell 20%. This could happen again.

Corporate bonds can be more interesting. Currently, a 20-year investment yields between 4.0% and 4.5%. High-quality junk bonds will yield a point or two more, although that little extra return may not be worth considering.

Debt funds

Following the rising returns from emerging markets in 2017, Hartford's Emerging Markets Local Debt Fund is at the top of the high-yield list for bond investors.

The fund reports a total return per year of 19.23%, with a 12-month dividend yield of 26.65%.

References

1. The Free Dictionary (2019). Current income. Taken from: financial-dictionary.thefreedictionary.com.
2. Russell Wayne (2017). Some Options for Those Seeking Current Income. Taken from: investopedia.com.
3. James Chen (2018). Current Income. Investopedia. Taken from: investopedia.com.
4. Eco-Finance (2019). Current Income. Taken from: eco-finanzas.com.
5. Investopedia (2019). Capital Gains vs. Investment Income: What's the Difference? Taken from: investopedia.com.