Relying on a single source of income – whether it is from your day job or a business that you operate – is not a good idea at all. If your income source is cut off even for a brief period of time – if you are between jobs or if your business suffers losses – you might struggle to meet your expenses. This is precisely why it makes sense for you to invest your money in such a way that you can earn a monthly income, which can supplement your primary source of income.
Given here are six investment ideas which can help you earn a monthly income on a consistent basis.
Dividend Paying Stocks
Dividend paying stocks should be an integral component of your portfolio, as they provide consistent short-term returns (in the form of dividends) as well as long-term returns (in the form of capital gains).
While a vast majority of companies pay dividends on an annual or semiannual basis, there are many companies that pay dividends on a monthly basis as well. You can invest in these companies to earn a monthly income from your portfolio.
Before investing in any company, you should make sure that it is financially stable and has a history of paying monthly dividends for a reasonable length of time.
Exchange Traded Funds
ETFs, as you know, are easy to buy, easy to sell, and are a much safer investment choice compared to individual stocks. Many ETFs, especially the funds which focus on the bond segment, tend to pay dividends on a monthly basis. Many of these funds are offered by reputable firms like BlackRock and Vanguard Group and can be an excellent addition to your diversified investment portfolio.
The two key factors you should consider before choosing an ETF to invest in are dividend yield (the higher the better) and expense ratio (the lower the better).
Similarly, you can also invest in mutual funds that provide you with a monthly income in the form of dividends. Debt funds that invest in bonds and other such stable asset classes can be an excellent choice, especially if you are risk averse and looking for consistent, above-average returns on a monthly basis.
Real Estate Investment Trusts
Commonly known as REITs, these trusts invest in residential and commercial real estate properties – either in physical properties or in mortgages – and share the rental income with their shareholders. The dividends offered by REITs are typically higher compared to the returns you can get from most other types of investments, as these trusts are mandated by federal law to distribute as much as 90% of their rental income with their shareholders.
You can invest in publicly traded REITs, which pay dividends on a monthly basis, through a brokerage firm. Alternatively, you can also invest in REIT mutual funds or ETFs.
Royalty Trusts
A royalty trust is an entity which invests in companies that are involved in the exploration, production, and sale of natural resources like minerals, oil, and natural gas. In return for its investment, the trust receives royalties from the companies on a regular basis.
Similar to REITs, royalty trusts also follow a profit-sharing model, wherein they distribute their royalties with their shareholders – on a monthly, semiannual, or annual basis. So, you can look for trusts that pay monthly dividends and invest in them.
It should be noted that the dividends paid by royalty trusts tend to fluctuate from time to time – depending on production levels and commodity prices.
Bonds
Technically, bonds cannot help you earn a monthly income, since the interest is generally paid on a semiannual basis. You can, however, easily solve this problem using the laddering strategy.
A vast majority of bonds issued by the government as well as private companies pay interest at least twice a year. The payment schedule usually differs from one bond to another. For example, a bond might pay interest in January and July. Another bond might pay interest in March and September. Similarly, you can invest in six different bonds, which pay interest at six different intervals, so that you can receive interest every month from a different bond.
It should be noted that bonds generally have minimum investment requirements, so you need to invest a substantial amount of money in order to be able to buy a set of bonds and implement the laddering strategy.
Rental Real Estate
Investing in rental real estate is undoubtedly one of the best ways to earn a monthly income. You can get a loan to buy residential or commercial real estate properties and rent them out. You can use the rental income for the monthly mortgage payments. Once you pay off the mortgage, you can invest the rental income to build a considerable retirement corpus.
Real estate investments, however, require a substantial amount of capital, as you have to pay anywhere from 10% to 20% of the total cost of the property as down payment. This is something you need to keep in mind while looking for rental real estate properties to invest in.
Investing for a Monthly Income – What You Need to Know
There are two key things you need to keep in mind when it comes to investing for a monthly income.
Due Diligence
The importance of due diligence cannot be overstated when it comes to investing for a monthly income. Do not invest in a random fund or trust just for the sake of getting higher returns. In most cases, the risks associated with such investments tend to outweigh the benefits by a wide margin. So, make sure the company, fund, or trust that you invest in is financially strong, has excellent credit ratings, and has a history of paying interest or dividends on a consistent basis.
Saving for the Future
The monthly returns you get from your investments are meant to supplement your main source of income. It does not, however, mean that you should spend all of it on your day-to-day needs. It is important to save and reinvest it so that generate long-term wealth and achieve the goal of financial independence.
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