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Seeking to Add Income to Your Portfolio

 

Many investors focus on building long-term wealth through capital appreciation as their top objective. However, adding an income component to your portfolio may unlock a wealth of additional benefits, including a degree of stability, flexibility and the potential to enhance your overall financial well-being.

The Rationale for Income Investing

Of course, it’s the goal of every investor to see that their portfolio grows. Your investments can grow one of two ways: growth of capital, where the securities increase in value over time, and through income, where your investments pay you regularly, and you can either take that money out or reinvest it into additional securities.

Investments that can generate income may offer several tangible advantages:

Supplemental Income: Whether supplementing retirement income, generating additional spending power or simply seeking financial security, a steady stream of income can significantly improve your financial flexibility.

Mitigating Volatility: While market fluctuations are inevitable, income-producing assets like bonds, dividend-paying stocks or ETFs that generate income, can provide a buffer against downturns, offering a degree of stability to your portfolio.

Compounding Power: Reinvesting your income back into your portfolio harnesses the power of compounding, potentially accelerating long-term wealth creation.

Enhanced Independence: Knowing you have a predictable income stream fosters a sense of financial freedom, allowing you to focus on other aspects of life with greater confidence.

Exploring the Investment Landscape:

Investors seeking income have a diverse array of options at their disposal:

Dividend-Paying Stocks: Companies with a history of distributing a portion of their profits to shareholders offer the potential for regular income alongside capital appreciation. Careful research and selection are crucial to identify companies with stable and sustainable dividend policies.

Investment-Grade Bonds: Fixed-income instruments issued by governments or corporations, offering predictable interest payments and varying degrees of risk depending on the issuer’s creditworthiness and maturity date.

Real Estate Investment Trusts (REITs): These vehicles allow you to invest in income-producing real estate like apartments or shopping centers without directly owning them, providing diversification and potential tax advantages.

Preferred Stocks or Convertible Securities: These “hybrid” securities combine the features of stocks and bonds, offering higher, fixed dividend payments but with varying degrees of risk depending on the issuing company. Convertible securities offer the additional benefit of “converting” to equity at some date in the future; this option tends to increase its price volatility relative to preferred stocks.

Income-Oriented Funds and ETFs: A simple way to add portfolio income is through mutual funds or ETFs that have an income focus. ETFs have become increasingly popular because of their transparency, constant pricing and tax advantages. ETFs with an income focus can invest in bonds, income-producing stocks or other strategies that deliver income.

Understand Risks and Potential Rewards

Remember that while investing for income may offer lower volatility, risks remain. While certain investments offer predictable income streams, others might fluctuate, so diversification across different asset classes can help manage risk.

Adding income to your portfolio presents a strategic approach to building wealth. By carefully selecting income-generating assets, you can build stability, generate regular cash flow and potentially reduce volatility in your portfolio. Talk with a financial advisor to tailor an income-oriented strategy that aligns with your needs and objectives.

Disclosure

To determine if this Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Fund’s prospectus, which may be obtained by calling (800) 994-0755. Please read the prospectus carefully before investing.

Westwood ETFs are distributed by Northern Lights Distributors, LLC (Member FINRA). Northern Lights Distributors and Westwood ETFs (or Westwood Holdings Group, Inc.) are separate and unaffiliated.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. No representation or warranty is made concerning the accuracy or completeness of any data compiled herein. Any statements non-factual in nature constitute only current opinion, which is subject to change. Any statements concerning financial market trends are based on current market conditions, which will fluctuate.

Potential risks include: Credit quality risk which measures an issuer’s ability to repay debt. Prepayment risk is the chance a borrower will repay debt early, often due to falling interest rates. Interest rate changes affect bond, stock, and derivative prices. Rising rates generally lower bond prices and stock prices, while falling rates can increase them. Derivatives like options and futures are used to hedge against interest rate risk.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

Past performance is not indicative of future results. All information provided herein is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned.

There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Investing involves risk, including loss of principal.

There is no guarantee the holdings will continue to pay dividends.

This investment may not be suitable for all investors and ETFs are subject to loss of principal.

Diversification does not assure a profit or protect against loss in a declining market.

© 2024 Westwood Management Corp.

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The information contained herein represents the views of Westwood Holdings Group, Inc. at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy or completeness of any data compiled herein. Any statements non-factual in nature constitute only current opinion, which is subject to change. Any statements concerning financial market trends are based on current market conditions, which will fluctuate. Past performance is not indicative of future results. All information provided herein is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned.