24 Investments That Pay Monthly Income
Whether you are actively growing your wealth for the future, or living off your retirement funds today, investments that generate reliable monthly income should be a prominent component of your portfolio.
Reinvesting income for compound growth is the fastest and most consistent way to grow your money for the future. For those closer to retirement, investments that deliver reliable monthly income are one of the best tools to manage living costs and preserve wealth.
Historically, we have relied on financial markets – Wall Street – to provide our investment income. But today, interest rates are stuck at historic lows, the stock market is wildly volatile and dividends are generally weak, and annuity rates are pretty abysmal. At the same time, the cost of living is rising, fast. It’s a lose-lose situation!
Fortunately, there are better options out there. The JOBS Act in 2012 relaxed securities regulations, opening up a world of investing options previously reserved for the wealthiest investors. In this article you’ll find 24 of the best monthly income investments for 2021 and beyond.
Best Monthly Income Investments of 2021
So, here is my ultimate list of the best monthly income investments of 2021.
I have included a range of both traditional and alternative investments in this list. I have also included some investments that pay interest bi-annually. These can be factored into your overall monthly income plan using a ladder investment strategy.
So far, I have added 24 different asset classes, and I will aim to add more in the future, so be sure to subscribe to the Priority Investor weekly email for updates.
1. Certificate of Deposit (CDs)
Certificate of Deposit accounts are offered by Banks and other financial institutions such as credit unions. Customers agree to deposit a lump sum, for a fixed amount of time in exchange for regular interest payments. Every institution offers it’s own specific terms, including the interest rate offered, and any penalties for early withdrawals.
CDs are considered safe investments because they are generally federally insured. Because of this, interest rates are usually very low although often slightly higher than typical savings rates.
Including certificates of deposit in your monthly investment income strategy will reduce the overall risk profile of your portfolio.
2. Short-Term Corporate Bonds
Like CDs, short term bonds are on the lower end of the risk spectrum. Because these bonds are short term, there is less risk of default by the borrower and less risk of losses due to fluctuations in interest rates.
Due to this lower risk profile, short terms bonds are used as a risk reduction tool when setting up an investment portfolio to produce monthly income. The returns are certainly nothing to write home about, but there is little chance of losing all your money.
Most investors will choose to invest in a short term bond fund rather than buying bonds directly. This method of investing offers some diversity in the underlying bond investments as a bond fund will typically hold a range of different bonds covering various issuers, industries, and regions.
Bond fund investors also have the benefit of oversight from a professional fund manager picking the underlying bond investments, making a bond fund a great option if you are a more passive investor and do not want to spend a lot of time micro-managing your investment portfolio.
3. Long Term Corporate Bonds
Long term bonds generally offer better interest rates than their short term counterparts. But along with a better return comes more risk.
Long term bonds are more sensitive to changes in interest rates as they have a longer term. When interest rates rise, the price of bonds tends to fall. When interest rates fall, bond prices rise. If you are aiming to hold a bond until maturity, this interest rate risk is less of a problem because the income from bonds is fixed, and you do not intend to sell the bond so it’s price is less of an issue.
Right now, interest rates are at historic lows, so the only way to go eventually is up. This means that, at some point, long term bonds with fixed coupons are likely to lose value. That said, rates seem unlikely to rise any time soon.
There are many ways to invest in long term bonds as part of your monthly income strategy, but most investors will buy exchange-traded funds (ETFs) that offer similar benefits to short term bonds funds such as diversity of holdings and a professional fund manager.
4. International Bonds
To add some diversity to your monthly income plan, you might consider international bonds. No different to US bonds, international bonds are simply debt obligations issued by corporations. In this case however, the corporation is based outside the US, and the bond is most likely issued in a foreign currency.
There are lots of international bonds to choose from, including Eurobonds, Global Bonds, Foreign Bonds and Brady Bonds.
Eurobonds are usually issued by corporations based in Europe, Eurobonds are issued in a foreign currency, and traded outside the country in which the bond’s currency or value is denominated. An example of a Eurobond would be a German corporation issuing bonds in Taiwan, denominated in US Dollars.
Global bonds are much the same as Eurobonds, with the added characteristic that they can also be traded and issued in the country whose currency is used to value the bond. For example, a German corporation issuing bonds in US Dollars in the United States.
Foreign Bonds are issued by foreign corporations in the currency of the country they are being issued in. For example, a bond that is issued by a British Corporation in the United States, and valued in US dollars.
Brady Bonds are government bonds issued by foreign government, backed by US treasury bonds, and issued in US Dollars. These types of bonds were mostly issued by Latin American countries, and were first issued in the late 1980’s.
5. US Treasury Bonds, Bills and Notes
While not strictly an investment that pays monthly income, US Government debt is seen as one of the safest investments. It’s unlikely that the US government will default on their debt, so they might be worth including in your portfolio – if only as a risk reduction tool.
There are three types of US Government debt; Treasury bonds, notes, and bills. Each of these has a different term and interest rate. Treasury Bonds have a term of 30 years, and pay interest twice a year. Notes pay a lower rate of interest and have terms ranging from 2 to 10 years. Bills have terms as short as 4 weeks up to 1 year.
You can invest in US Treasuries directly, or you can purchase them via a bond broker. There are also several investment funds that invest in U.S government debt assets. For example, the Vanguard Extended Duration Treasury ETF. Investing in treasuries through an ETF is a great way to gain passive exposure to a broad range of U.S. Treasury bonds
6. Municipal Bonds
Another investment that pays interest every 6 months, Municipal bonds are seen as extremely low risk. The 10-year default rate is about half that of corporate bonds at just 0.1%. Some Municipal bonds are tax-exempt, making them even more attractive.
There are two types of municipal bond; general obligation bonds and revenue bonds. General obligation bonds are used to raise money to cover ongoing costs, while revenue bonds are issued to pay for infrastructure projects.
As with all other bond types in this list, there are two main ways to invest in Municipal bonds; buying bonds through a bond broker, or buying into an investment fund such as a mutual fund or ETF.
7. Floating Rate Funds
A floating rate fund is a type of mutual fund or exchange traded fund (ETF) that invests in bonds, bank loans, and other interest-bearing assets. These funds pay a variable (or floating) interest rate. Floating rate funds tend to invest in short-term assets.
Some examples of floating rates exchange traded funds include:
- iShares Floating Rate Bond ETF
- SPDR Barclays Capital Investment Grade Floating Rate ETF
- Invesco Variable Rate Investment Grade ETF
Floating rate funds can invest in both short term and long term debt securities, and fund investors are exposed to the credit risk associated with the funds underlying investments.
8. Money Market Funds
Money market funds are investment funds (mutual funds and ETFs) that invest in cash and near-cash equivalents. These funds a very liquid, and they try to maintain a Net Asset Value (NAV) of $1 per share. Any excess earnings are distributed to shareholders in regular distributions.
There are 4 main types of money market funds:
- Prime – investing in non-government debt
- Government – investing in government securities, and repurchase agreements
- Treasury – investing in U.S. Treasury issued debt
- Tax-Exempt – investing in tax-exempt assets such as Municipal bonds
Because money market funds have to maintain a $1 NAV, they are forced to make regular payment to their investors, creating a dependable flow of monthly income.
9. Dividend Paying Stocks
While the income-generating performance of the stock market is pretty poor in general, there are stocks that pay much higher than average dividends.
You can do you own research and pick the best stocks with a history of consistently raising dividends, or you can invest in a dividend focused fund and leave the hard work to the fund manager. You can buy stocks and funds with an online brokerage account.
Despite the fact that most stocks pay dividends annually, there are some that pay out monthly dividends. It is also possible to create a monthly income stream by selecting a range of stocks that pay out their dividends on different months of the year. This is know as a ladder strategy.
10. Real Estate Investment Trusts (REITs)
REITs own income-producing properties and distribute 90 per cent (90%) of their profits to shareholders. Investing in a REIT is an easy way to invest a small amount in income-producing real estate, and there are plenty that pay dividend income on a monthly basis.
There are many different types of REITs specializing on all manor of property types, regions and sectors. Some REITs invest in mortgages secured by real estate, and collect interest income.
You can invest in REITs directly, or through exchange traded funds. Either way, they’re very accessible, liquid and generally quite stable investments.
11. Master Limited Partnerships
Master limited partnerships (MLPs) offer a way to invest in a business enterprise in the real estate and natural resources sectors through a public exchange. MLPs do not pay federal income taxes, but investors are taxed on their dividend income.
MLPs sell units to investors, but they are listed on national stock exchanges, so they are considered relatively liquid investments. They are required to distribute all of their free cash to their investors, so they can be a great monthly income investment. Also, they do not pay Federal income taxes. instead, investors just pay their own taxes on the income distributions they receive from the MLP.
An MLP does not have employees. They are managed by a general partner (GP), which will typically holds at least a 2% stake in the venture initially.
A business might choose to raise capital from investors using an MLP because it is typically cheaper than borrowing money. Effectively, the business is exchanging future cash flow from an underlying project for capital from investors to get the project operational.
12. Peer to Peer Lending
Another alternative investment that has become unceasingly accessible and popular in recent times, P2P lending investments can boast yields into double figures.
The premise is simple. A P2P lending website will match borrowers with investors (lenders). As an investor, you can choose to lend money to the borrowers in the form of secured and unsecured debt.
Interest rates charges to borrowers vary from site to site, and depend largely on the quality of the borrower and credit risk on making the loan.
Returns for investors range from about 8 per cent (8%) to well into double figures. You can also invest in part of a loan alongside other investors in the form of notes. this can be a good way to spread the risk of investing across multiple loans and borrowers.
13. Private Lending
Private lending is a great way to generate monthly income from real estate, without the hassle of owning physical property. As a private lender you act as the bank, providing a loan to a real estate investor in exchange for a fixed rate of interest, and lien over the property as security for your investment.
Provided you find a good borrower to work with, private lending offers solid monthly income returns with minimal risk. You can check out our own Private Lending Program here.
You can expect a private lending investment to pay interest from 8 per cent (8%) to 12 per cent (12%), depending on the dynamics of the deal, the quality of the real estate and the experience and financial stability and capability of the borrower.
14. Real Estate Mortgage Notes
If you can’t find a good borrower or project for a private lending investment, you could buy an existing mortgage note (or two) to add to your monthly income plan.
Real estate note investments consist of a promissory note and a lien – usually a mortgage deed or deed of trust. The note details the terms of the loan between a borrower and lender, while the lien provides security for the lender who can force the sale of the real estate through a foreclosure if the borrower defaults on the terms of the note.
Notes can be performing or non-performing. Performing notes are in good standing with regular payments received on time from the borrower. Non-performing notes are bad debts where the borrower has stopped making payments.
The secondary market for real estate notes is huge, with billions of dollars of performing and non-performing notes traded between lenders and investors every day.
15. Commercial Rental Properties
Commercial property can be a great investment for monthly income. This particular real estate asset class includes almost any non-residential building, and also residential apartment buildings with more than 4 units. Examples of commercial property include medical centers, office buildings, industrial property, multifamily apartment buildings, hotels, warehouses and malls.
Compared to residential rental properties, commercial property tends to require more capital, expertise, and time to buy and manage successfully. Fortunately, there are a number of ways you can co-invest with experienced partners.
You can invest in commercial property funds, REITs, syndicates and crowdfunding websites. These access points allow smaller investors to co-invest with a relatively small amount of capital alongside experienced sponsors or fund managers who will do all the hard work.
16. Residential Rental Property
Rental properties are a go-to investment option for those seeking monthly income because of the regular rent payments, easy accessibility for all investors, and the fact you can use mortgage debt to amplify your cash on cash returns.
Owning rental properties can be hard work. Despite often being marketed by turnkey rental providers as a passive income investment, dealing with ‘tenants, toilets and trash’ can be time consuming and costly.
There are a number of ways to invest in rental properties, including a range of widely accessible residential property funds – including REITs – as well as direct ownership of physical rental properties and real estate crowdfunding websites.
Often, investors buying rental properties will use a BRRRR investment strategy; buy, rehab, rent, refinance repeat. This essentially facilitates the purchase of multiple rental properties with a relatively small amount of capital.
17. Timberland & Forestry Investments
Timber is seen by some institutional investors as the perfect asset class. Trees continue to grow and produce more timber regardless of market conditions. So your investment continues to grow whatever the economic weather.
Good quality timber takes a long time to grow, so income from owning timberland is unlikely to be received on a monthly basis. One solution that can help you incorporate forestry and timberland investments into a monthly income investment plan, is to invest via a timber fund. Because large funds and timber REITs own lots of timberland properties, they are constantly felling or thinning on rotation, so there are often more frequent income distributions to investors.
Timberland and forestry investments have been one of the most consistent asset classes for some of the world’s biggest investors, including pension funds and university endowments. However, a high cost of entry and a lack of forestry management skills are significant barriers to entry for many investors.
18. Business Development Companies (BDCs)
BDCs can be great investments that pay monthly income at a higher than average yield. These regulated investment companies invest in small and/or distressed businesses – providing then with access to growth capital.
They are structured as closed ended investment companies, and distribute 90 per cent (90%) of their income to shareholders. Because of their regulated status they do not pay Federal income tax before distributing dividends. instead, individual shareholders pay their own taxes on income they receive.
BDCs are listed on the stock exchange and there are currently around 50 to choose from. Although they are high risk due to their underlying investments in small business, they also pay significant returns. As of May 2019, the ten best business development companies were paying between 11 per cent (11%) and 14 per cent (14%).
19. Preferred Stock
Preferred stocks can be a great investment that pays monthly income at a decent rate. But of course, there are risks to consider, especially considering the wild volatility associated with the stock market.
This interesting equity investment acts a little bit like debt, paying fixed income to investors. But preferred stock is an equity investment, and so has the potential to appreciate in value as well. Like any fixed income investment, preferred stock can be used to generate predictable monthly cashflow.
Preferred stockholders get priority over common stockholders when it comes to dividends. They also have a greater claim over company assets of the company falls into liquidation. But, preferred stockholders rights are limited. Usually, they cannot vote on company matters like common stockholders do.
Another good monthly income investment, self storage units generate regular cashflow from rents just like commercial or residential real estate.
Now becoming very popular among real estate investors, one of the most attractive characteristics of self storage, is that it still works well in a downturn economy. Whether the economy is up or down, people still need storage. It is also much lower maintenance than residential or commercial property investments.
According to industry sources, there are roughly 49,000 self-storage facilities in the US, comprising 2.6 billion square feet, generating approximately $32 billion in annual revenue.
You can invest in self storage by buying units directly, or through a specialist self-storage REIT.
23. Mobile Home Parks
Next on our list is mobile home parks. These can be great investments for monthly income, as well as capturing capital appreciation.
Over 5 per cent (5%) of the US population live in mobile home parks. That’s almost 18 million people. Demand is high, and supply limited, so investors are starting to take an interest.
Mobile home parks offer investors regular cashflow from rents and other property income. They can have capitalization rates of up to 10 per cent (10%), making them solid cashflow opportunities.
You can invest in this asset class by buying a park yourself, through a syndicate (like crowdfunding), or through a fund known as a manufactured housing REIT.