What is investment income and how to get it
Investment income is a passive type of earnings, when an investor successfully invests funds and after a while makes a profit. In addition to bank deposits, you can get investment income by investing money in securities, cryptocurrencies, metals, real estate, promising startups.
What is investment income
This is the profit of an individual or a company received from any type of investment. As assets capable of generating income, the following are used:
- cash, including currencies of other countries;
- precious metals;
- raw materials and various goods;
- real estate;
- startups and others.
Any of these assets and those not mentioned here can bring both unlimited profit and significant loss. For some, the income from investing is nothing more than an increase to the main source of income, for others, investments have long been earnings.
Types of investment income
Conditionally, the following categories of investment income can be distinguished, these are:
- Income from the increase in the value of the asset. The essence boils down to the following: an investor buys an asset and after a while, if its value increases, sells and earns on the difference. Investments in this case can be both long-term and short-term, but regardless of the type of asset, you will have to pay tax.
- Income received in the form of dividends, formed from the profit of the organization in which the investor invested. The investment of funds in this case is carried out through the purchase of shares. Such income is considered regular, but the frequency of payment of dividends can be different: from monthly to annual. This type of income is subject to taxation, so it is more profitable to purchase shares through a broker who will assume the obligation to pay tax.
- Passive income from placing funds on a bank deposit. The easiest way to invest, which does not require special knowledge and skills. Free money is placed on the deposit, the bank invests the clients’ funds and pays them interest at the expense of the profit received. At the moment, this is not the most profitable option, as deposit rates have significantly decreased.
- Income from rent generated by the rent charged for the transfer of commercial or residential real estate for use. Income depends on the situation in the real estate market, rental rates and other factors affecting the economy.
Calculation of investment income
There are a number of special formulas, the calculation of which allows you to determine not only the investment income, but also the feasibility of investing in a particular asset.
Below are the main indicators of profitability:
- The current income of the investor. This indicator reflects the profit from owning an asset. For example, income from placing funds on deposit. To calculate the current income, it is necessary to deduct the amount of expenses from the amount of receipts.
- Net income from investing. This value shows the investor’s income received over the entire period of ownership of the asset. To calculate it, the amount of investments made by the investor when joining the project is deducted from the total profit for a certain period of time, for example, for several months.
In addition to the indicators indicated for determining profitability, such indicators as discounted income, profitability index, average and internal rates of return are calculated, and for a deeper analysis, investors calculate the estimated rate of return and profitability.
Published: 18 January, 2023