This page gives you a quick introduction to the DIY Income Investor approach - the 'nuts and bolts', if you like.

This is a system that will help you to manage your own financial affairs effectively - including savings and stock market investments. This is something that you can - and should - Do Yourself. It is not terribly complicated or difficult: if you can use a computer and understand percentages you are 90% there!

Most importantly, if you Do It Yourself, there is no need to pay hidden commissions or management fees to financial advisors and fund managers.

Why be an 'Income' Investor?

An 'income' investor is - fairly obviously - one who invests with the objective of generating an income, rather than for capital gains, as a 'growth' investor would. Although income investors will usually focus on income, there is an important secondary objective to - at least - preserve their capital, and they should therefore also look at some of the measures that a growth investor would use - they need to be aware of value traps.

An income investor would therefore usually invest in savings accounts and stock market securities that have a high yield (i.e. interest rate) as well as a relatively low risk of losing their capital. Typical types of investment would include bonds, high yield dividend shares and 'bond-like' securities such as preference shares.

 The typical income investor is someone who will  - at some stage - depend, at least partially, on their investments for income; therefore, they generally tend to be conservative and buy relatively low-risk investments. However, most investors who are willing to take some risk for a higher income — otherwise they would not invest in anything other than index-linked gilts (government stock)!

Shares paying good dividends can be a good bet for overall returns. This is because dividend levels are usually set at levels a company feels confident it can maintain. So dividends are related to conservative expectations about short term profitability.

Valuation measures that income investors are likely to use include dividend yield and dividend cover for shares, and both flat yield and yield to maturity (YTM) for bonds.

Wealth Potential

Before you start, you need to understand the Wealth Potential concept - it's basically about spending less (hopefully much less) than you earn:

                            Wealth Potential = Income - Expenditure

With your surplus cash you can get started (after paying off any remaining debts).

Alternatively, you might already have savings and investments and be looking for a new approach - one that makes sense!

The basic idea is to generate income from your savings and investments in a way that:
  • maximises your savings and investment income
  • minimises any tax on this income (and any capital gain)
  • keeps risks to your capital as low as possible

Money Snowball

The system is based on the idea of a Money Snowball - the cumulative effect of both paying off debt plus compound interest on savings.

Income Pyramid

Income is built up in levels, making up layers of the Income Pyramid shown below:

The levels of the Income Pyramid (from the ground up) are generally different asset classes, ranging from the safest to the most risky:

Avoid Tax

A key consideration is to shield your savings and investment from the taxman. The approach will obviously differ between different countries - this blog deals mainly with the UK but some information on the US and other locations is included.

Where possible, savings and investments should be held in tax-protecting or tax-reducing structures, such as:
  • In the UK: Cash ISA, Stocks & Shares ISA, SiPP
  • In the US: IRA/Roth IRA, 401(k)/Roth 401(k)


To minimise your time and effort in managing your portfolio of savings and investments, you should use on-line accounts as far as possible.

Asset allocation: risk and yield

Money is allocated between asset classes by:
  • keeping minimum balances in Levels 2 and 3 (to cover lifestyle emergencies)
  • moving up the levels as you gain experience and confidence  - being particularly cautious in moving beyond Level 4 (ETFs)
  • a mix that suits your attitude to risk
  • increasing your after-tax returns by moving your money up to the higher levels of yield available on the Income Pyramid

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.