Investors tend to have different investment styles. Some might prefer to trade index futures daily while others buy fixed income securities and hold them for decades. Regardless of the investment style all investors are seeking one objective - generating a return.
Every investor wants the maximum bang for every buck. A healthy return can be used to further fuel growth or pay the bills. Income seeking investors fall in the latter group. They want their investments to generate a substantial return, but they’re not content seeing the money pile up. They want to be able to use the cash instead, living off their hard earned money.
So, if you’re an income seeking investor or retiree who needs investments that throw off regular cash flows, here are three types of investments you should consider:
1. Monthly income funds or ETFs
There’s an investment product designed for every sort of investors, so it makes sense that there are mutual funds and exchange traded funds for income seekers too. Monthly income funds offer exactly what their name suggests - a monthly income. The rate of that income varies, of course.
Some of the best income funds include Vanguard High Dividend Yield Index Fund (VHDYX), Vanguard Dividend Appreciation Index Fund (VDAIX), and Columbia Dividend Opportunity Fund (INUTX). All three have a healthy dividend yield, a monthly payment schedule and a low expense ratio. They generate an income from a combination of high-yield dividend stocks, preferred stocks, and fixed income securities. Basically, they try their to create a return and pay it back every single month.
Another great option for income seekers is an ETF. You can buy and sell exchange traded funds like regular stocks but they’re actually a basket of different stocks. Some of these pay out a regular monthly income. Take the ProShares S&P 500 ® Dividend Aristocrats ETF (NOBL), for example, tracks a basket of great quality dividend stocks included on the Dividend Aristocrats Index. The dividend yield is nearly 2.5% right now.
2. Dividend stocks
Another way to create a monthly income is to directly invest in the dividend stocks themselves. Creating your own dividend stocks portfolio will let you mix and match different companies and different yields to suit your needs. There’s no reason why you can create a monthly income portfolio with a basket of high quality dividend stocks.
Yes, this strategy takes a little more effort and research. Yes, it is also a little more risky since you tend to diversify less and concentrate your holdings to beat the index. But if you can pull it off properly the returns are likely to be phenomenal.
While your bank savings account will earn barely anything and a government treasury bond will only yield 2.5%, some stocks will offer a mind-boggling yield with the chance of scoring some capital gains as well. Seagate Technology (STX), the data storage company, offer a whopping 6.79% dividend yield. A well-researched and well-picked dividend stock portfolio could offer a monthly income and annual yield of more than 3%.
Another great way to get your money to pay you a salary is to invest in property. However, instead of buying an actual house and dealing with all the complex paperwork, you can simply invest in a Real Estate Investment Trust or REIT.
REITs have been around for decades. They offer investors a diversified portfolio of some prime real estate assets and a monthly income. Realty Income (NYSE:O), Iron Mountain (NYSE:IRM), and Well Tower (NYSE:HCN) are some of the best REITs on the market right now. They offer dividend yields of 3.8%, 5.7% and 4.9% respectively.
Different types of REITs invest in different type of properties. Some only invest in the mortgages while other focus on industrial buildings and parking lots. You can pick and choose which one suits you best.
Income seeking investors are constantly trying to get their money to work harder. The return on investment needs to be more than enough to live on. If you’re trying to replace your livelihood with investment income you also need to plan your investments in a way that you can expect a paycheck on a monthly basis.
A mutual fund, ETF, REIT or dividend stock portfolio could do the trick.