Enter the total investment value and the annual yield into the calculator to determine the annual income from the investment.

Income Investing Formula

The following formula is used to calculate the total income from an investment: 

I = TI * AY
  • Where I is the investment income ($) yearly
  • TI is the total investment amount ($)
  • AY the annual yield ($)

Income Investing Definition

Income investing, or investment income, is a term used to describe the total income earned from a particular investment, usually annually.

The investment income is determined by the total investment amount and the investment yield.

The yield is the return on the investment, typically shown as a percentage of the total investment. For example, a yield of 5% of a 1000-dollar investment would return $50 annually in investment income.

Example Problem

How to calculate investment income?

  1. First, determine the total amount invested.

    For this example problem, the total amount invested is $5000.00.

  2. Next, determine the yield of the investment.

    This money was invested in an index fund that returns 10% annually.

  3. Finally, calculate the income from investing.

    Using the formula above the income from investing is found to be:
    I = TI * AY
    I = $5000 * (10/100)
    I = $500.00 income annually.

FAQ

What is the difference between income investing and growth investing?

Income investing focuses on generating steady income from investments, often through dividends or interest, while growth investing aims at increasing the value of the principal investment over time. Income investors prioritize securities that provide regular income, whereas growth investors seek investments that offer the potential for substantial price appreciation.

Can you lose money in income investing?

Yes, like any investment strategy, income investing carries risks, including the potential loss of principal. Factors such as market volatility, interest rate changes, and the financial health of the entity issuing the income-generating investment can impact the investment’s value and the income it generates.

How does annual yield affect investment income?

The annual yield, typically expressed as a percentage, directly affects the amount of income an investment generates each year. A higher annual yield means a higher income from the investment, assuming the total investment amount remains the same. However, higher yields often come with higher risks.

Is income investing suitable for all investors?

Income investing may be more suitable for investors seeking regular income, such as retirees, or those with a low risk tolerance. However, the suitability depends on the individual’s financial goals, investment horizon, and risk tolerance. It’s important for investors to assess their personal situation and possibly consult a financial advisor before choosing an investment strategy.