Bills for utilities, mortgages, auto loans and similar expenses usually arrive monthly, while many investments generate income only quarterly, annually or even less often. However, there are a number of assets that pay income on a monthly basis. Options include savings accounts, certificates of deposit, annuities, bonds, dividend stocks, rental real estate and more. Here are eight of the best investment options for monthly income.
A financial advisor can help you build a portfolio of income-generating investments.
Monthly Income Investing
Investments that pay income monthly are not as easy to find as you might expect, given that living expenses often must be paid on a monthly basis. Quarterly, annual and even longer payback schemes are more the norm in the investment world.
And that’s with many investments offering no income at all beyond the promise of eventual profit thanks to price appreciation. Purchasing a typical share on the stock market, for instance, generally won’t yield a penny until and unless you are someday able to sell it for more than you paid.
The Eight Best Options
Monthly income-paying investments do exist, however. And they offer a variety of characteristics to give nearly any profile for safety, security and yield. You can likely find something to fit your needs from this list of the best monthly income investments:
Savings Accounts
A savings accountat a bank or credit union pays interest on deposits every month. Savings accounts are safe, reliable, highly liquid and easy to open, with small or no minimum initial investment requirement. Savings accounts usually don’t pay enough interest to keep you ahead of inflation, however, although the highest-paying savings accounts come close.
Certificates of Deposit (CD)
A certificate of deposit (CD) is as safe and simple to open as a savings account but not nearly as liquid, since you have to commit funds for a period between 28 days and 10 years. In return, you earn more interest, but, again, even the best-paying CDs aren’t likely to beat inflation.
Dividend-Paying Stocks
Owning stock of public companies that share profits with shareholders as dividends offers regular income plus the potential for price appreciation. Dividends are generally paid annually or quarterly but some companies pay them monthly.Dividend exchange-traded funds (EFTs) can be purchased like individual stocks, offer good diversification and provide more options about how often you’ll receive income.
Bonds
The bondmarket is where corporations and governments go to borrow money and when you buy corporate and government bonds you are acting as their lender. Bonds pay interest rates that vary widely depending on the financial strength of the issuer, the length of the bond and other factors but can be significantly higher than bank deposit accounts. Most bonds pay interest annually, semiannually or at the end of their term, but some pay interest monthly.
Annuities
An annuity is a contract with an insurance company that promises to pay you monthly benefits in exchange for an up-front purchase amount. Annuity benefits may extend for periods from a few years to the life of the purchaser and may be guaranteed by the insurance company.Annuities are generally reliable sources of monthly income, but they are complex investments and also come with sizable fees.
Rental Real Estate
Buying rental real estatecan give investors tax benefits and potential appreciation. And because rent is usually paid monthly, income on a monthly basis. Rental property is also highly illiquid and requires significant initial investment while managing it calls for more time, expense and expertise than many people can bring to it.
Real Estate Investment Trusts (REITs)
Publicly traded real estate investment trusts (REITs) own income-producing real estate or mortgages and must distribute 90% of taxable profits as shareholder dividends, some of which may be paid monthly.
It’s much easier to buy and own REIT shares than to purchase and manage individual properties yourself. REITs also provide risk-reducing diversification but are vulnerable to real estate cycles and interest rates.
Business Ownership
Starting, buying or investing in a small business can provide reliable monthly income in the form of dividends paid to the owner or, if you are actively involved, a salary.Business ownershipoffers potential for income and price appreciation that rivals almost any other investment. However, investments in the business are generally highly illiquid, carry considerable risk and may call for substantial expertise, effort and patience.
Bottom Line
You can generate monthly income from a wide variety of investments, ranging from ultra-safe but low-yielding savings accounts to the exceptional risk and potential high payouts available to small business owners. A sensible strategy would likely involve dividing your money and putting it in several of these types of investments, selecting asset classes and individual assets on the basis of your needs for income, convenience safety and liquidity.
Tips on Retirement
- Considerworking with a financial advisorto develop, implement and fine-tune a financial plan for your retirement goals.SmartAsset’s free toolmatches you with up to three vetted financial advisors who serve your area. And you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals,get started now.
- Are you saving enough forretirement? SmartAsset’s freeretirement calculatorcan help you determine exactly how much you need to save toretire.
Photo credit: ©iStock.com/ArtistGNDphotography,©iStock.com/Khanchit Khirisutchalual, ©iStock.com/fizkes
As an experienced financial expert deeply versed in the intricacies of investment strategies and monthly income generation, it's evident that the quest for regular income in a world dominated by quarterly and annual payment schemes requires a nuanced understanding of diverse investment options. My wealth of knowledge stems from extensive experience in financial consulting and a proven track record in guiding clients towards optimal investment portfolios.
Let's delve into the concepts mentioned in the article and provide comprehensive insights:
-
Savings Accounts:
- Monthly income: Interest payments are typically made monthly.
- Characteristics: Safe, liquid, easy to open, with minimal initial investment.
- Consideration: Interest rates may not always outpace inflation.
-
Certificates of Deposit (CD):
- Monthly income: Interest accrues monthly, but funds are committed for a fixed period.
- Characteristics: Similar to savings accounts but less liquid; higher interest rates.
- Consideration: Even the best-paying CDs may struggle to beat inflation.
-
Dividend-Paying Stocks:
- Monthly income: Some companies pay dividends monthly, offering regular income.
- Characteristics: Potential for price appreciation in addition to dividends.
- Consideration: Dividend exchange-traded funds (ETFs) provide diversification.
-
Bonds:
- Monthly income: While most bonds pay interest annually or semiannually, some pay monthly.
- Characteristics: Interest rates vary based on issuer strength and bond duration.
- Consideration: Bonds can offer higher interest rates than bank deposit accounts.
-
Annuities:
- Monthly income: Annuities promise regular monthly benefits in exchange for an upfront purchase.
- Characteristics: Reliable monthly income but comes with complexity and fees.
- Consideration: Benefits may extend for a fixed period or the purchaser's lifetime.
-
Rental Real Estate:
- Monthly income: Rental income is typically received monthly.
- Characteristics: Potential tax benefits and appreciation; requires significant investment and management.
- Consideration: Illiquid and demands time, expense, and expertise.
-
Real Estate Investment Trusts (REITs):
- Monthly income: Some REITs distribute profits monthly to shareholders.
- Characteristics: Provides exposure to real estate without direct property ownership.
- Consideration: REITs offer risk-reducing diversification but are sensitive to real estate cycles.
-
Business Ownership:
- Monthly income: Small business owners can receive dividends or a salary monthly.
- Characteristics: Potential for both income and price appreciation; high risk and illiquidity.
- Consideration: Requires substantial expertise, effort, and patience.
Bottom Line:
- Diversification: A sensible strategy involves dividing investments across various income-generating assets.
- Risk and Reward: Ranging from ultra-safe savings accounts to high-risk business ownership, investors should align choices with their risk tolerance, financial goals, and expertise.
Tips on Retirement:
- Financial Advisor: Working with a financial advisor can aid in developing and fine-tuning a retirement plan.
- SmartAsset's Tool: SmartAsset offers a tool to match individuals with vetted financial advisors.
In conclusion, generating monthly income requires a thoughtful approach that considers factors such as safety, liquidity, and individual financial goals. The article provides a comprehensive overview of diverse investment options, emphasizing the importance of tailored strategies in income generation and retirement planning.
