24 Investments That Pay Monthly Income
You work hard, save your money and invest diligently, then you retire and live off the interest, right? We spend decades growing our wealth, then almost overnight our focus shifts towards investments that pay monthly income.
We all want to live out our twilight years in relative comfort, free of financial worry. The problem is, doing so is a LOT harder in today’s economy than ever before.
To date, we have relied on financial markets – Wall Street – to provide our monthly investment income. But today, stocks are volatile and yields are weak. Bonds are risky with poor returns. Annuity rates are at all time lows, and 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.
Here’s is my list of 24 investments that pay monthly income (or at least close to it). I have included both traditional and alternative investments in the list. My only criteria is that you can hold hold in your own retirement account such as a self-directed IR or 401(k).
The Ultimate List of Investments That Pay Monthly Income
So, here it is, my ultimate list of investments that pay monthly income. I have included a range of both traditional and alternative investments.
I have also including some investments that pay interest bi-annually. These can also be factored into your overall monthly income plan using a ladder investment strategy.
Certificates of Deposit
Short-Term Corporate Bonds
Long-term Corporate Bonds
Treasury Bonds, Bills & Notes
Floating Rate Funds
Money Market Funds
Real Estate Investment Trusts (REITs)
Master Limited Partnerships (MLPs)
Commercial Real Estate
Residential Rental Properties
Timberlands & Forestry
Self Storage Units
Mobile Home Parks
Business Development Companies (BDCs)
There are obviously plenty of income-generating investments to choose from. Here is a slightly more detailed explanation of each asset on my list.
Certificate of Deposit (CDs)
Certificates of Deposit 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.
Short-Term Corporate Bonds
Another investment that pays monthly income, short term bonds are also 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.
Much like CDs, short terms bonds are used as a risk reduction tool when setting up an investment portfolio to produce monthly income.
Most investors will choose to invest in a short term bond fund. This method of investing offers diversity as the fund will invest in a wide range of bonds across various types of issuers, industries, and regions. Fund investors also have the benefit of oversight from a professional fund manager.
Long Term Corporate Bonds
Long term bonds generally offer better interest rates than their short term counterparts. But along with better returns, 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.
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.
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.
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.
There are government bond issued by foreign government, backed by US treasury bonds, and issued in US Dollars.
US Treasury Bonds, Bills and Notes
While not strictly an investment that pays monthly income, US Government debt is seen as the safest and most secure income-generating investment, so it is worth including in your portfolio – if only as a risk reduction tool.
There are a number of way to invest in US Government debt, including Treasury bonds, Treasury notes, and Treasury bills. Each 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.
Investors buy Treasuries as a risk reduction tool due to the low level of risk.
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, the lowest risk way to invest in Municipal bonds is to buy them direct (rather than in a fund), and to hold the bond until maturity.
Floating Rate Funds
Floating rate funds often make monthly income distributions to investors, and so are worth considering as part of this list.
These funds make investments in assets that pay a variable (or floating) interest rate, including bonds and other debt securities.
There are a number of ways to invest in floating rate funds, including ETFs
Money Market Funds
Money market funds are mutual funds 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. This makes money market funds attractive if you are looking for investments that pay monthly income
- 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.
Dividend Paying Stocks
While the income-generating performance of the stock market is pretty poor in general, there are stock what 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.
Despite the fact that most stocks pay dividends annually, there are some that pay out monthly. 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. You can access our series of articles covering stocks that pay monthly income here.
You can buy stocks and funds using an online brokerage account.
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.
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!
Master Limited Partnerships
Master limited partnerships (MLPs) offer a way to invest in a business enterprise through a public exchange. MLPs do not pay federal income taxes, but investors are taxed on their dividend income. The use of MLPs is limited to real estate and natural resources.
MLPs have to distribute all of their free cash to their investors, so they can be a great investment that pays monthly income.
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, and investors can choose to lend money to the borrowers in the form of 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.
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, experienced borrower to work with – such as Garnaco – private lending offers strong monthly income returns with minimal risk.
You can expect a private lending investment to pay interest from 5 per cent (5%) to 12 per cent (12%), depending on the deal, the real estate and the quality of the borrower.
make sure you do your due diligence on the borrower and the real estate, and have a qualified attorney check out the loan documents before you invest.
You can read our Private Lending Checklist here.
If you can’t find a good borrower for a private lending investment, you could buy an existing mortgage note (or two) to add to your monthly income plan.
The secondary market for notes is huge, with billions of dollars of performing and non-performing notes being traded between lenders and investors every day.
If you want monthly income from your investments, then you should focus on finding performing notes for sale. These are notes that are already (or still) generating regular monthly payments from the borrower. Non-performing notes are basically defaulted debt. They are cheap to buy, but hard work – and often expensive – to turn into a profit.
Commercial Rental Properties
Commercial property can be a great investment for monthly income. This asset class includes almost any non-residential building, and also some residential buildings with more than 4 units. Examples include medical centers, office buildings, industrial property, multifamily apartment buildings, hotels, warehouses and malls.
Compared to residential rentals, 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, 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.
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 investments, dealing with ‘tenants, toilets and trash’ can be time consuming and costly.
There are a number of ways to invest in rental real estate, including a range of widely accessible residential property funds, as well as direct ownership of physical rental properties and real estate crowdfunding.
Timberland & Forestry Investments
Timber is seen by some investors as the perfect asset. 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 is often a more regular income stream.
Timberland and forestry investments have been some of the most consistent assets 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.
Business Development Companies (BDCs)
BDCs can be a great investment that pays 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 any 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%).
Preferred stock is a great investment that pays monthly income at a decent rate. But of course, there are risks.
This interested 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 within an income-generating portfolio.
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.
You can buy preferred stock through a broker.
Another good monthly income investment, self storage units generate regular cashflow from rents, just like commercial or residential real estate.
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.
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.
Mobile Home Parks
Last on our list (for now), is mobile home parks. These can be great investment 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, and have capitalization rates of up to 10 per cent (10%).
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.
More to Come…
That’s it for now for my Ultimate List of Investments That Pay Monthly Income. Watch this space though, because I’ll be adding more as time goes on.