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.
What Are Monthly Income Investments?
Monthly income investments are financial products designed to provide investors with a steady stream of income on a monthly basis. These investments are particularly appealing to retirees or individuals seeking regular cash flow to cover living expenses.
They can include a variety of asset types, such as dividend-paying stocks, bonds, real estate investment trusts (REITs) and annuities. Each of these options offers different levels of risk and return, making it essential for investors to carefully consider their financial goals and risk tolerance.
Receiving the income isn’t the end of these benefits for many of these investments. Some can also offer the promise of eventual profit through price appreciation. Purchasing a typical share on the stock market, for instance, can allow you to receive a dividend and then you can sell it in the future for a profit on what you paid for the stock.
8 Potential Investment Options
Monthly income-paying investments do exist, however. They offer a variety of characteristics to give nearly any profile safety, security and yield. You can likely find something to fit your needs from the following best monthly income investments:
1. Savings Accounts
A savings account at 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. But the highest-paying savings accounts come close.
2. Certificates of Deposit (CD)
A certificate of deposit (CD) is as safe and simple to open as a savings account. However, it’s 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.
3. 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.
4. Bonds
The bond market is where corporations and governments go to borrow money. When you buy corporate and government bonds, you’re 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.
5. 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.
6. Rental Real Estate
Buying rental real estate can 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. Not to mention, managing it calls for more time, expense and expertise than many people can bring to it.
7. 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.
8. 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’re actively involved, a salary. Business ownership offers 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.
How To Start Investing for Income
Selecting the right assets is a critical step in income investing. Dividend stocks are a popular choice as they offer the potential for both income and growth. Companies with a history of stable and increasing dividends are often considered reliable. Bonds, on the other hand, provide fixed interest payments and are generally seen as lower-risk investments.
Diversification is a fundamental principle in investing, and it holds for income investing as well. By spreading your investments across different asset classes and sectors, you can reduce risk and increase the potential for stable income. A well-diversified portfolio might include a mix of dividend stocks, bonds, and REITs, each contributing to a balanced income stream.
Every investment carries some level of risk, and income-generating assets are no exception. It’s essential to evaluate the risk-return profile of each investment to ensure it aligns with your financial objectives.
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 potentially 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. Ideally while also selecting asset classes and individual assets on the basis of your needs for income, convenience, safety and liquidity.
Tips on Retirement
- Consider working with a financial advisor to develop, implement and fine-tune a financial plan for your retirement goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel 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 for retirement? SmartAsset’s free retirement calculator can help you determine exactly how much you need to save to retire.
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