Investment options not only offer a steady stream of income but also provide a reliable way to grow your wealth over time. Imagine having investments that generate monthly income that adds to your financial security and helps you achieve your long-term goals.
By receiving monthly returns on your investments, you can maintain a predictable income stream that complements your regular earnings.
Whether you’re a seasoned investor or new to the world of finance, exploring investments that pay monthly can provide a practical way to enhance your financial well-being.
8 Investments that Pay Monthly
By delving into these options, you can discover the potential for stable returns, strategic portfolio growth, and increased financial flexibility.
1. Savings Accounts
A high-yield savings account can be a reliable source of monthly income, offering a straightforward and low-risk way to grow one’s wealth over time.
By depositing money into a savings account, individuals can earn interest on their balance, with the interest rate determined by the financial institution. Unlike more complex investment options, such as stocks or real estate, a savings account requires minimal effort and expertise, making it an accessible option for those seeking a monthly income stream.
The interest earned is typically compounded regularly, potentially accumulating wealth without active involvement.
While the returns may be modest compared to riskier investments, the security and predictability of a savings account make it an easy choice for individuals looking to build a stable monthly income foundation.
2. Certificates of Deposit (CDs)
Certificates of Deposit (CDs) offer a secure and straightforward way to generate monthly income.
When you deposit money into a CD, you agree to leave it untouched for a specific period, known as the term, which can range from a few months to several years. In return, the bank pays you a fixed interest rate during this period.
CDs are low-risk investments, as they are typically insured by the government up to a certain amount. The interest earned is predictable, and at the end of the term, you receive your initial deposit along with the accumulated interest.
This makes CDs a reliable option for those seeking a steady and hassle-free income stream.
While the returns might not be as attractive as riskier investments, CDs’ safety and stability are a great option for individuals looking to preserve capital and earn monthly income with minimal effort.
3. Dividend-Paying Stocks & Funds
One of the simplest and most common forms of generating monthly income is dividends from stocks, mutual funds, or exchange-traded funds. You buy a share, which pays you a dividend each quarter indefinitely.
Some stocks pay higher dividend yields than others, of course. One stock may pay an annual yield of 1% of its share price, while another pays 5%.
To reduce the risk in your stock portfolio, buy exchange-traded funds with a wide range of dividend-paying stocks so you don’t overinvest in any company. Hundreds of ETFs specialize in high-dividend stocks, though they can be a bit pricey.
That makes stocks a good starting point, with their high liquidity, easy diversification, historic solid growth, and low initial cash requirement.
Open a brokerage account if you don’t have one already. You can opt for a free online brokerage, many of which are robo-advisors, or a brokerage that offers incentives to jumpstart your portfolio. If you’re new to investing, opt for a beginner-friendly online brokerage.
You can also easily invest in them using retirement accounts such as individual retirement accounts or employer-sponsored 401(k)s.
4. Bonds
Bonds typically pay interest until they mature, and you get your initial money back.
If you’re new to the concept of bonds, they’re basically a loan from you to a borrower, which you can sell on the secondary market to another investor at any time.
Bonds come in two fundamental forms: government bonds and corporate bonds. Some government bonds, including many local municipal bonds, come with tax benefits.
In recent years, bonds have paid out lower returns than in the 20th century. In an environment of perpetually low-interest rates, many investors need help getting excited about them.
Still, bonds have historically played an important role in reducing risk for retirees. Because bonds tend to be lower-risk investments, many investors gradually buy more bonds instead of riskier stocks as they approach retirement.
5. Rental Properties
Rental properties generate ongoing income without requiring you to kill the golden goose and sell off any assets. That means you can spend less time worrying about safe withdrawal rates or risk management as you approach retirement — at least when it comes to your rental income.
In fact, real estate assets generally drive your net worth higher over time as the properties (hopefully) appreciate in value and your tenants’ rent payments pay down your mortgages.
Rents also adjust for inflation, so you don’t have to worry about diminishing your returns. The returns are predictable because you know the purchase price of the property and the market rate for rent, and you can accurately forecast the long-term averages of all expenses.
Property owners can mitigate the primary risks of rental properties through aggressive tenant screening, rent default insurance, and property management best practices, including semiannual inspections.
And as a cherry on top, real estate comes with outstanding tax benefits.
Plus, no one says you have to rent to full-time tenants. Alternatively, you can rent your property short-term on Airbnb.
That said, rental properties aren’t a good fit for everybody. They require skill and knowledge to invest profitably, which is precisely why many new rental investors lose money.
Rental properties also require thousands of dollars of cash upfront in the form of a down payment and closing costs, which makes diversification a challenge at first.
Real estate is also notoriously illiquid. It costs a great deal of money and time to cash out your equity by selling.
6. Public REITs
Only invest in rental properties if you’re genuinely interested in learning the ropes and making a hobby or business out of it. If you’re only interested in diversifying your assets, you have plenty of easier options for gaining exposure to real estate, including real estate investment trusts or REITs (pronounced REETS).
You can buy publicly traded REITs like stocks or exchange-traded funds through your brokerage account. That makes them the most liquid option for investing in real estate. Unfortunately, it also makes them the most volatile.
The United States Securities and Exchange Commission requires publicly traded REITs to pay out 90% of their profits in the form of dividends. That means REITs tend to pay high yields, but it’s difficult for REIT managers to grow their portfolios, which limits REITs’ growth potential.
Public REITs are a simple first step if you want a fast and easy way to diversify your portfolio and add real estate.
However, because they trade on stock exchanges, they tend to move more in line with stock markets than other real estate investments, limiting their upside as a diversification strategy.
7. Private REITs
These privately owned funds typically invest in commercial real estate — often apartment buildings — and allow individual investors to buy shares in the funds.
Unlike publicly-traded REITs, private REITs don’t offer much liquidity. Most funds clearly state that they represent long-term investments, often five years or longer. Some allow investors to sell their shares early, but usually with a penalty.
Some private REITs also invest in real estate-secured debt, not just direct property ownership. That helps them pay out more ongoing income in dividends to investors rather than relying solely on rental cash flow from their buildings.
You can buy private REITs on sites like Streitwise, Fundrise, and Concreit.
8. Business Income
I own an online business that I love and plan to continue managing for many years to come.
But my business partner is nearing 60. She no longer feels the same affinity for the headaches and stresses of running a business, so we’ve started planning her exit.
That doesn’t mean she’ll stop earning money from the business. Although her salary will cease, she’ll still earn distributions as a business owner, even if she never helps with affiliate marketing or contributes as a blogger again.
Starting a business allows you to leverage other people’s time and money to create your own monthly income engine.
What starts as a hobby business can evolve into something larger and more complex that takes on a life of its own. And a successful business continues generating money even after you hire someone else to run it for you.
Explore some potential money-making hobbies you could grow into a business and build your own empire that endures even after you bow out.
Why Invest for an Additional Monthly Income Stream?
People invest in income-producing assets for many reasons. A few of the more common reasons include:
- To Enjoy an Early Retirement: With enough investments generating monthly income, you can cover your living expenses, so working becomes optional.
- To Enjoy a More Comfortable Retirement: Yes, you’ll probably collect a (small) check for Social Security benefits each month after you retire, but that doesn’t mean you’ll be living large. The more monthly income you earn from your investment portfolio, the better the quality of life you can lead in your later years.
- To Reduce Dependence on Your Job: Losing your only source of income makes you feel utterly helpless. When you have other sources of income, however, you don’t feel nearly the same helplessness or desperation to find a replacement job immediately.
- To Ditch Your High-Octane Job for Something You Love: High-stress, high-income jobs tend to lock us with golden handcuffs. With investments generating monthly income, you can walk out the door and pursue your passion, even if it doesn’t pay as well.
- To Live Anywhere: With enough monthly income from investments, you sever the tether of your job and thus the need to live near it. There are plenty of countries where $2,000 a month buys a comfortable lifestyle — sometimes even a luxurious one.
- To Build Wealth Quickly: Wealth begets more wealth, and nowhere is that clearer than with passive income. Imagine someone handed you a rental property earning $1,000 per month of income, and you set aside your newfound extra income and invested it as a down payment for another property.
Final Word
Diversifying your portfolio with investments that pay monthly can provide you with a steady and reliable source of income.
Take control of your financial future and start reaping the rewards of investments that pay monthly.
