4 Income Investing Mistakes to Avoid
Avoiding These Mistakes Will Increase Your Chances of Success as an Income Investor
When you’re building a portfolio designed to deliver income, whether to supplement your lifestyle now or fund your retirement later, it’s easy to focus on yield alone. But income investing isn’t just about chasing high numbers. It’s about building a reliable, sustainable stream of income over time.
At Poole Advisory, we work with many clients, especially those in or approaching retirement, who want their portfolios to work harder. Here are four common income investing mistakes we help our clients avoid.
1. Mistaking ‘High Yield’ for ‘High Value’
It’s tempting to look at a list of shares or ETFs and immediately gravitate toward the highest dividend yield. But in investing, things that look too good to be true often are.
High yields can sometimes indicate underlying issues, like falling share prices due to poor performance or unsustainable dividend payouts. This is known as a dividend trap: the income might look attractive today, but it may not be there tomorrow.
Instead of focusing purely on yield, we encourage clients to ask:
🔹 Is this company fundamentally sound?
🔹 Is the dividend likely to be maintained, or better yet, grow?
🔹 Is this yield backed by sustainable earnings?
A strong, lower-yielding investment with consistent dividend growth can often outperform a flashy high-yielder that’s on the decline.
2. Ignoring Dividend Growth
If you’re planning to live off investment income, whether partially or fully, you’ll need that income to grow with inflation. Yet many investors only consider the size of the current dividend, not its potential to grow.
This is short-term thinking in disguise. Over time, even modest dividend growth can significantly increase your income and protect your purchasing power.
Take this hypothetical:
You invest in a stock with a 4% yield that grows its dividend by 5% each year. In 10 years, your income has nearly doubled. That’s the power of compounding, applied to income.
The key is to strike a balance between current yield and future growth, aligned to your timeframe and goals. If you’re not spending the income now, prioritising dividend growth can be a smarter play.
3. Skipping the Goals Conversation
Your investment strategy should start with one question: What is this money actually for?
We often meet investors who skip straight to selecting shares or funds, without first defining what they’re trying to achieve. Income for income’s sake is not a goal. Lifestyle flexibility in retirement, helping kids with school fees, or replacing a salary while you reduce work hours, those are goals.
When your income strategy is built around the life you want, not just a yield target, you make smarter, more intentional investment decisions.
At Poole Advisory, we take a goals-based approach that helps you stay focused and adapt your income plan as life evolves. Plan well. Live more.
4. Lacking Patience
Perhaps the hardest part of income investing is sticking with it. Dividend growth, reinvested income, and disciplined savings all compound, but slowly at first.
We’ve seen it firsthand: clients who start with small income streams and consistent contributions often end up with strong, self-sustaining portfolios over time. The real magic of compounding is in the final years, not the first few.
Trying to accelerate the journey by chasing high-risk stocks or timing the market rarely ends well. Long-term success comes from:
🔹 Reinvesting dividends where appropriate
🔹 Topping up consistently
🔹 Letting time do its work
In income investing, patience isn’t just a virtue, it’s a strategy.
The Bottom Line
Income investing done well can provide freedom, flexibility, and confidence in your financial future. But it requires more than just picking the biggest yield or copying what’s worked for others.
By defining your goals, balancing income with growth, and staying the course, you’ll be better positioned to create an income stream that supports your lifestyle, now and into retirement.
If you’d like help reviewing your current income strategy, or want to explore how to grow your income in a sustainable, tax-effective way get in touch today.
Compliance Disclaimer:
This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns.
Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917
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