Thematic investing is a way to invest in a specific style or a broad idea, whether it’s a trend or passion you believe in or its focusing on investments that can help you achieve more stable growth by earning dividends or extra income. Take the latter for instance — a lot of investors choose income-generating stocks as a theme because they can earn passive income and also drive appreciation (growth) over a long period of time.
MoneyLion’s Earn & Grow portfolio theme makes it easy for investors to EARN from income-generating equity (stock) ETFs, and because we’re talking about stocks (rather than bonds), there’s also potential to GROW their money over time.
What’s the deal with dividends? We’ll tell you..
What’s a dividend?
It’s when Christmas comes early … or quarterly or… Actually, a dividend is a way for a company to return some capital (AKA money) to shareholders when they generate profits. Think of them like little rewards to investors for holding their stock.
Why do companies give dividends?
And not all companies give them out — some give back to their shareholders in other ways, like reinvesting profits back into the business. Many choose to give out dividends because it creates more demand for their stock.
How often do companies issue dividends?
It depends on the company, but most pay quarterly — every 3 months. Others pay dividends twice a year, and some are considered irregular, meaning that they pay out every month or it’s completely random.
What are other income-generating equity investments?
Preferred stocks and covered call options are two other examples of investments that can produce income. A preferred stock is an investment that typically pays higher dividends or sometimes interest payments but may have less upside (potential increase in value) in terms of price appreciation. In some cases, preferred stocks can be viewed as a hybrid between a stock and a bond.
Covered call options are investment contracts backed by the stocks already in a portfolio or ETF. The investor who sells the contract receives cash, which is called a premium, that becomes additional investment income. While covered call investing may give up some upside if prices of the underlying stocks rise quickly, they’re typically a solid investment approach for producing a source of income. It can be complicated to invest in covered calls on your own, but with our Earn & Grow portfolio, you can pursue income through covered call investments through a single ETF, the easy way.
The Earn & Grow portfolio tracks income-generating investments
Investments that have high dividend yields can be found across industries, and that list is changing all the time. With our Earn & Grow portfolio theme, we provide a model with a high income focus that helps you pursue greater levels of income (without your having to scour the universe of investments on your own!).
With insights from Global X, an ETF industry leader, MoneyLion’s Earn & Grow model can:
- Pinpoint investments with high dividend yields
- Source income from equity securities and provide current income and capital appreciation over a long-term investment horizon.
- Provide different ways to find yield while balancing risks.
- Take an innovative approach, using industry sectors as levers for adapting to changing market conditions.
- Reduce sector concentration risks associated with certain high yield strategies, such as Utilities and Mortgage REITs, and then supplement with income from other approaches like dividend growth and covered calls.
Overall, the Earn & Grow portfolio theme is built to provide a relatively high yield while attempting to minimize volatility and risk, so that its volatility will generally be lower than the volatility of the broader US market. Taking advantage of this portfolio theme is a great way for investors to generate income and stabilize their portfolio, while still pursuing growth.
What kinds of ETFs does the “Earn & Grow” portfolio theme invest in?
“Earn & Grow” invests in ETFs that track high dividend yields or other ETF that focus on equity investment that produce income (e.g. covered calls). The portfolio also takes advantage of income-related opportunities in specific industries known for generating income — like Real Estate or Insurance.
The model tends to focus on broad market exposure, both domestic and global, helping you to stay diversified. In order to provide varied streams of income many of the ETFs focus on:
- Stocks of companies that grow their dividends
- Preferred Stocks
- Covered Calls
Additionally, the Earn & Grow portfolio theme invests in ETFs related to different sectors depending on the current market conditions or cycles. This helps further manage diversification and risk while still giving exposure to investments that contribute to income and growth.
At a given time, the theme’s investments in ETFs that track specific sectors could include:
- Financials (e.g., Financials Select Sector SPDR ETF)
- Information Technology (e.g., Vanguard Information Technology ETF)
- Communication Services(e.g., Vanguard Communication Services ETF)
- Health Care (e.g., Health Care Select Sector SPDR ETF)
- Consumer Staple (e.g., Consumer Staples Select Sector SPDR ETF)
Who would choose an income-generating strategy?
Many investors who are playing it safer (with more conservative portfolios) or investors who are just looking for a balanced investment approach seek out income generating investments because they want some exposure to corporate profit growth in addition to the investment income.
Income-generating strategies could be attractive to people who are getting ready to retire or are already retired or who otherwise don’t receive a steady traditional paycheck because they offer steady streams of revenue that allow for a lower risk and consistent source of income.
Dividends can also help investors who may not need portfolio income today because they can help stabilize portfolios and allow investors to reinvest that money. Actually, when interest rates are low, as they have been since the 2008 financial crisis, the stocks of companies that pay healthy dividends can be quite attractive and provide a more balanced investment approach that could include both appreciation of investments as well as income.
Want to start investing for dividends?
Download the MoneyLion app and check out the fully managed portfolio. It’s personalized to your needs with no minimums or management fees. And you can add themes like this one plus others (Future Innovations and Greater Good) to customize your portfolio even more.
Or you can learn more about how investing at MoneyLion works.