Income Investing vs Value Investing
Income investing and Value investing are two methods of making money from stocks. One way attempts to buy undervalued stocks sure to take off. The other involves buying stocks that are consistently paying off an income.
So which way is better? Well each strategy has one big weakness and one big strength.
Value investing which involves buying strong companies whose stocks are undervalued has one major advantage. When you look at the long term results of this strategy it really does work. Companies that have excellent fundamentals will ususally beat average stock market return in the long term.
So checking things such as the PE ratio and the book value help an investor to determine how strong the overall company really is.
There is one thing that value investing lacks however. Investing for value is a very long term approach; you may have to hold a stock for 20 years or more to see any real kind of return off of that equity.
The real benefit of buying dividend paying stocks is that you can start to see money as soon as you buy it, without waiting such a long time. Because stocks will pay a consistent dividend buying good quality dividend stocks helps to produce an income whether or not the stock goes up.
But there is one bad part about dividend investing, it can take a lot of money to be really profitable with it.
That is why the best long term strategy is probably not to simply buy a value stock or a dividend stock, but to combine the two. As a stock appreciates over time so does the dividend which means the income it produces also increases. In short each of these strategies is comes up short where the other is profitable.
This is a really hands off way to make a living from the stock market, but it does take a while and a lot of savings to get it to work.
