How to generate more income & reduce risk from your investments

Generating extra income can be a challenge and while working more hours may increase your take home, it is of course capped by hours in the day! The alternative is generating investment income, but that can be just a bit harder than it looks!

Currently in Australia, lower interest rates have meant that returns to investors from cash at the bank. In fact, after tax and inflation, net real returns to investors is pretty much zero and in some instances, negative. This is forcing an increasing number of investors to look at alternatives, which perhaps do offer the prospect of positive real returns.

This means either Real Estate or the Stock Market.
Real Estate prices in much of Australia are at historically high levels, meaning that a high upfront investment is needed, just to get in. While interest rates are low, which is a positive, so too are net yields, ie the money you receive as an investor after costs. High cash outlay and maybe 3 or 4% net return being the case here.

So what about the stock market?
Traditional stock market investments average around 7 to 8% per year, on average, according to the latest ASX/Russell Report. What’s more, with a little bit more education and strategy, investors can add significant value by increasing return and reducing risk to help create a lower risk, low time input strategy known as Covered Calls.

The covered call strategy is not new – in fact it has been around since the early 1970s and has become increasing popular with investors who want lower risk, above average returns.

The strategy requires you to buy shares – typically blue chips – in blocks of 100 and then generate income by selling a call option over the stock – hence Covered Calls.

This strategy offers a massive advantage. Instead of having to correctly guess the direction the shares will move in, you will instead be paid an immediate and upfront income. What’s more, if the price of the share goes up, you will make an even higher return. If it stays flat, you keep your income and repeat again next month. If the price falls a bit – the income received should help offset the pain!

There is a bit to learn with this, but not that much – rather like baking a cake – follow the recipe, get the outcome and having taught this covered calls strategy to literally thousands of people, I am pretty confident that I can teach you too!

Sometimes stepping outside of your comfort zone to try something new can be challenging. Take your time, take baby steps and follow a process that is not only time tested, but is being used in real life, real time by people just like you, who are successfully making extra income through using covered calls!

Andrew Baxter

CEO of Australian Investment Education

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1 Comment

  1. September 23, 2016 at 2:47 am — Reply

    There are other alternatives available to investors who may not wish to ‘play the stock market’. They are outcome based or target managed funds.

    Whilst the control aspect is given up to professional managers, these funds generally aim to achieve a set target i.e. X% above a benchmark or inflation.

    Whilst they may not always benefit from the large upswings in the market they are designed to minimise the downside risk as they look to preserve capital in the first instance.

    However no investment is without risk – unless you have your money in cash and then this isn’t an investment really.

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