Investment income is any type of financial gains that are realized from any type of investment made by an individual or business. In order to have this type of income, the investment must generate revenue above and beyond the original assets used by the investor to secure the asset. It may be in the form of interest, dividend payment issued in connection with stock ownership, or any other type of capital gains that are realized from any type of security.
One of the easiest ways to understand investment income is to look at the interest that is accrued on simple investments, such as savings accounts. In return for opening the account with a given bank, the customer earns interest on the balance. Depending on the terms and conditions that apply, the customer may earn income in the form of interest quarterly, semiannually, or annually on the funds he or she chooses to place into the account.
The same is true for a wide range of investing opportunities. When finances are used to invest in such opportunities as futures options, stocks, or bond funds, the expectation is that the investment will begin to earn a return of some type. That return, or the amount earned above and beyond the initial purchase price, is considered investment income.
Planning for the future with a retirement plan of some type is also possible due to the accrual of investment income. Part of the process of responsible retirement fund management is to invest the monies collected for the fund in investments that are likely to generate a reasonable return. The fund manager may include several different types of investments in the overall retirement fund planning, such as a 401(k), and Exchange Traded Fund or ETF, or other types of mutual funds. In all situations, the goal is to increase the value of the investment portfolio that feeds the retirement plan, thereby ensuring that all plan participants have a degree of financial security after retiring from the work force.
It is possible for just about everyone to earn this type of income on some level. For people who are very conservative with their investment activity, the smaller but consistent interest earned on savings accounts and certificates of deposit can be viewed as income earned from an investment. People who buy and sell stocks, invest in bond issues, or engage in currency trading do so with the anticipation of earning income on it. Even people who participate in an employee-sponsored retirement plan or pension are indirectly engaged in the task of generating investment income.