One of the biggest risks of income investing is inflation. If you insist on picking stocks and selling them, you'll lose a lot of money that way. Income investors avoid that stupidity, but they still have to deal with the creeping loss of purchasing power. That's one of the discouraging things. Traditionally, income investors have bought bonds, but these are subject to inflation.
One good idea that happened during the Clinton administration was the introduct of Treasury Inflation Protection Securities which are basically zero coupon bonds with the government growing them faster as inflation rises.
How have the elderly traditionally dealt with inflation? Well, before World War 2, it wasn't an issue. If you had enough income from bonds then you continued to have enough income from bonds, although in the long run that could vary somewhat as interest rate levels rose and fell. Still, they didn't do that to extremes.
inflation TIPS bonds
inflation TIPS bonds
Wednesday, May 9, 2007
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