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Are you searching for investments that pay monthly income? You’re in the right place. The idea of receiving “mailbox money” is attractive. But before you can start receiving regular passive income, you have to identify investments first. Today, I’m showing you 12 investments that pay you every month, so you can build more passive income and gain greater financial independence.
Why Invest for Passive Income
Before jumping into the investments that pay you every month, first consider why building streams of passive income makes sense. While everyone has their reasons, here are a few of the most common:
1) Early Retirement
If you want to retire early, you need streams of passive income. Why? Passive income allows you to avoid selling assets to pay for living expenses.
2) More Comfortable Retirement
To have a more flexible retirement, additional income can certainly help. Passive income creates opportunities to do the things you want to do in retirement (like travel). Many types of investments can create retirement income – we’ll cover many of those here.
3) Decreased Dependence on a “Day Job”
Ever heard the saying, “don’t put all your eggs in one basket?” Well, if all your income comes from your W-2 job, you aren’t very diversified. Instead, create additional streams of income to reduce your dependency on income from a full-time job. Doing so will put you in a position of financial strength should something happen to your regular income.
4) Greater Time Freedom
Finally, having streams of income creates opportunities to take back more of your time. Want to take a year off work to travel? With passive income coming in, that’s a real possibility. Maybe you just want to scale back your working hours. This, too, becomes an option when you have alternative sources of income.
Investments that Pay Interest Income
Once you decide on your reasons for wanting to earn passive income, start thinking about the investments that will pay you interest income every month. We’ll cover investments that pay dividends a bit later, but for now, we’ll focus exclusively on debt-style investment instruments.
While I’m generally describing these investments as those that pay you every month, certain investments only pay quarterly, for example. Stocks, for example, typically don’t pay you every month (they pay you quarterly). However, creating a portfolio of various types of investments can generate regular monthly income.
1. High-Yield Savings Accounts
Okay, okay, I get that high-yield savings accounts aren’t really high-yielding anymore. With inflation heating up, savings accounts don’t pack the same punch they used to.
However, you still need a savings account. It is one of the safest places to stash your cash, particularly money that you’ll need soon.
While it probably doesn’t make sense to keep much beyond your emergency fund in a savings account, you might as well choose a savings account that pays as much as possible. My favorite savings account as of late is CIT Bank. They seem to offer some of the industry’s best interest rates consistently.
2. Certificates of Deposit
While a savings account won’t pay you much, your next option to consider is a certificate of deposit. Otherwise known as a CD, these are investments where a bank pays you interest in exchange for committing to leave money at the bank for a certain period.
For example, if you buy a $5,000 two-year CD with 1% interest, your bank will hold your $5,000 for two years. In exchange, they’ll pay you 1% per year for the right to use your money.
Unfortunately, CD rates, too, have fallen in recent years. However, if you want to maximize interest on cash saved at a bank, these are a viable alternative to savings accounts, as they often pay slightly higher interest.
CIT Bank currently offers some of the highest CD rates, so check them out!
3. U.S. Government Bonds
This next investment for monthly income comes from the U.S. Treasury. The Treasury offers several types of bonds in which you can invest:
- Treasury Bills – Maturity of one year or less
- Treasury Notes – Maturity of two to ten years
- Treasury Bonds – Maturities from ten to thirty years
In general, the longer the duration of the bond (the period for which you’re tying up your money), the higher the interest rate. For example, if you buy a 20-year treasury bond, you can expect a higher interest rate than if you buy a one-year treasury bill. Why? Because you’re giving up the use of your money for a longer time.
While government bond yields remain near historic lows, the U.S. Treasury offers other investment options to consider. One of my favorites is the Series I savings bond. Series I bonds keep pace with inflation, helping to ensure that your money retains its purchasing power.
4. Municipal Bonds
While U.S. Treasury bonds are considered “risk-free,” there are other types of government bonds to consider. One such example is municipal bonds. States, cities, and counties issue municipal bonds to fund day-to-day obligations and capital projects.
Muni bonds (as they’re called for short) come in two different flavors – general obligation and revenue bonds. General obligation bonds are backed by the issuing entity and not a specific project. For example, if you buy a New York State muni bond, you rely on the State of New York to pay you back the money you lent them (plus interest). Revenue bonds, by comparison, are backed by a specific source of revenue, such as toll fees.
Municipal bonds are typically exempt from federal taxes, and they may be exempt from state and local taxes if you live in the state where the bond is issued. However, know that muni bonds carry different risks than Treasury bonds. Check out Investor.gov to learn more about municipal bonds.
5. Corporate Bonds
When it comes to debt investments, government bonds are generally lower risk. However, there are other types of debt investments that pay more in exchange for higher risk.
One such example is corporate bonds. Corporate bonds are investments where you lend money to corporations in exchange for a fixed interest rate. Corporate bonds span the risk spectrum from very safe to very risky depending on the corporation (and bond duration).
For example, if you buy a five-year Apple corporate bond, the chances are good that you’ll get paid back with interest in five years. But what if you had purchased an Enron corporate bond right before they went belly-up? Chances are, you’d have lost your investment.
While corporate bonds are terrific vehicles to earn higher returns, tread carefully as they can carry higher risk.
6. Private Notes / Private Lending
This next investment that pays monthly income requires a bit more work. While most people think of traditional investments like bonds when it comes to building income, it’s worth considering alternatives like private lending.
Private lending means a private transaction where you lend someone money in exchange for a fixed rate of return. For example, some people lend against real estate notes.
Tax liens are one such example. With a tax lien, you pay off someone’s overdue property tax bill, and then you become the lender to them. If they don’t pay you back with interest, you can take possession of their house through a foreclosure process. Another similar private lending opportunity is mortgage notes (for example selling your home and providing owner financing to the seller).
7. Peer-to-Peer Lending
Lastly, in recent years, peer-to-peer lending has gained in popularity. These services allow individual investors to buy small pieces of larger loans to individuals for things like credit card debt consolidation, home improvement, etc.
While these are unsecured loans to riskier borrowers, many investors have earned reasonable returns on these platforms, though past performance doesn’t guarantee future results.
Here’s how it works. Let’s say someone is looking to borrow $10,000 to consolidate credit card debt. Individual investors could buy a $25 slice of this loan (400 investors in total). By doing so, you can gain diversification by buying a greater quantity of notes.
The most popular peer-to-peer lending platform is called Prosper.
Investments that Pay Dividends / Distributions
Now that we’ve covered investments that pay interest, let’s consider investments that pay dividends or distributions. In general, these are equity investments where you’re buying an ownership stake in some sort of business.
8. Dividend-Paying Stocks
Perhaps the simplest form of dividend income comes from dividend-paying stocks. Stock dividends are your slice of the pie that companies payout to their shareholders – people that own shares of stock like you!
While not all stocks pay dividends, many do. The companies that pay dividends typically pay once per quarter, allowing you to earn a steady income stream throughout the year.
If you want to avoid single stock risk, one option to consider is a dividend index fund. These sorts of funds hold a basket of stocks that pay high dividend yields, allowing you to earn dividends while diversifying your risk.
Don’t have a brokerage account to buy dividend-paying stocks? Check out M1 Finance! It is one of the most innovative brokerage options, and I prefer it to others like Robinhood.
9. Preferred Stock
Preferred stock is another type of investment that pays regular income. It’s like a hybrid between regular stock (also known as common stock) and a bond. With preferred stock, you own a share of the company, but you receive a fixed dividend payout from the company. In practice, preferred stock acts much like a bond.
If you’re interested in earning a fixed stream of income, it’s worth considering preferred stock. While it can carry more risk than bonds (because technically preferred stock falls lower in the payout hierarchy of a company), it can also provide a higher return.
10. Real Estate Investment Trusts
Real estate investment trusts (otherwise known as REITs) are vehicles to buy real estate holdings. REITs pay out returns to investors regularly through the income they generate from the properties they own.
Think of a REIT a bit like an index fund but for real estate. For example, you can buy a slice of a shopping mall, a few apartment buildings, etc. through a REIT.
REITs often pay higher yields than dividend stocks. However, REITs aren’t very tax-efficient vehicles. Because they must payout 90% of their taxable income each year, it is not possible to defer capital gains in the same way as it is with stocks.
11. Crowdfunded Real Estate Investments
While I like REITs, I also like other real estate investment vehicles.
One such option is crowdfunded real estate. For several years now, I have been investing through a platform called Fundrise. Fundrise essentially acquires and manages properties on behalf of its investors. In that sense, it works like a REIT, except fewer intermediaries are taking a bite out of the earnings.
I’ve been impressed by the transparency that Fundrise offers in its investments. It’s candidly refreshing compared to “black box” investments where it’s difficult to understand what you’re buying.
There are other platforms to consider, such as CrowdStreet and RealtyMogul. You can read my comparison to learn more.
Fundrise is my favorite tool for getting started with real estate investing. It allows you to invest in a diversified portfolio of commercial real estate at low costs and with a great deal of transparency. Check out my full review to see if this tool is right for you!
12. Private Real Estate Investments
Lastly, if you’re looking to build investment income, consider investing in real estate directly. There are countless options to consider, including:
- Single-Family Rental Properties
- Multi-Family Rental Properties
- Commercial Buildings
- Mobile Home Parks
My advice here is to research the options and decide what interests you the most. You can make money in any of these real estate niches, so don’t overthink it.
Currently, I own two single-family rentals and one multi-family property (a duplex). Going forward, I plan to focus more heavily on multi-family. But that’s just me! Your preferences may be different than mine!
If you’re not sure where to start, though, purchasing a single-family rental property is an excellent place to start. Check out my guide on buying your first rental property to get started!
Considerations when Investing for Income
Before wrapping up, I want to touch on some key considerations when investing for monthly income. The right investments for me might not be suitable for you. Before deciding what to invest in, consider the following:
1) Risk Profile – i.e., how much risk are you willing to accept in exchange for an investment return?
2) Liquidity – i.e., how soon will you need your money back out? Don’t invest in illiquid or volatile investments like real estate or stocks if you need near-term access to your capital.
3) Return Target – i.e., based on your time horizon, what level of return are you seeking? This interplays with the level of risk you are willing to accept.
What is the best investment for monthly income? It’s the one that meets your personal finance goals (based on your time horizon/return target, risk profile, and liquidity needs). Personal finance is personal.
By the way, when you start building investments for passive income, you may want to track your progress. Check out Personal Capital’s net worth tracker and watch your wealth grow!
Personal Capital is a comprehensive suite of financial tools that helps you track your net worth, make sure you stay on track for retirement, and much more! The best part about Personal Capital is it offers a FREE way to track your investment and cash accounts and plan your financial future! Check out this review to learn more!
12 Investments that Pay You Every Month: Summary
Purchasing investments that pay monthly income is not difficult. But it does take some upfront time to determine which investments are the best fit for your investing needs.
Once you determine which investments make the most sense for you, simply invest some money to get started. Some investments will start paying out dividends/interest right away, while others may take a little longer depending on when you purchase them (e.g., if they pay quarterly).
While investing larger amounts of money will yield more monthly income, it’s okay to start slow and build income with time. Even if you don’t have a lump sum to invest for monthly income, making regular investment contributions will help you make progress.
To recap, here are 12 investment ideas to build streams of passive income:
- High-Yield Savings Accounts
- Certificates of Deposit (CIT Bank offers some of the best rates around)
- U.S. Government Bonds
- Municipal Bonds
- Corporate Bonds
- Private Notes / Private Lending (check out PeerStreet if this is of interest to you)
- Peer-to-Peer Lending
- Dividend-Paying Stocks
- Preferred Stock
- Real Estate Investment Trusts
- Crowdfunded Real Estate Investments (Fundrise is the platform that I use)
- Private Real Estate Investments
Building a portfolio of monthly investment income takes time. But the first step is picking investment options that align with your objectives. So, check out some of the ideas above to get started!