Generating Income From Your Investments

When most of us build our portfolios, we put most of our emphasis on building value – in other words, we are looking for financial assets that will appreciate in price. However, there comes a time when the value of that portfolio needs to be converted into a steady income stream. The most common reason for this is retirement, although it is not the only one. Unfortunately, in today’s low interest rate environment, generating a reliable income from investments can be challenging.

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In the past, investors used to rely on instruments such as treasury bonds to deliver a regular income stream. However, the yields on these now make them less attractive. The same applies for the most part to other fixed-income assets such as bonds and savings accounts. One exception is CDs, which still seem to deliver robust returns, as you can see from these 3 interesting accounts at CIT Bank.

For retirees, one way to achieve regular income is to purchase an immediate annuity. This is typically provided by an insurance company, and acts in much the same way as a pension. You buy the annuity for a fixed sum of money, and the insurance company then pays you regular income for a specific period of time – which can be anything from five years to life. As soon as you purchase the annuity, the payments start – that’s why it is called immediate. The yield on an annuity is significantly higher than you would get on a CD or treasury, but remember that once the annuity finishes, you don’t get back your initial investment.

Another approach is to reinvest your money in rental property. The rental return that you will get will vary depending on where you are in the country, but numbers in the 5% to 6% range are not unrealistic. Of course, this income will be taxable, and you will have to pay local property taxes and upkeep costs, but on the other hand the value of the property could appreciate over time – adding to the value of your portfolio while it is generating cash.

For investors who are willing to assume a little more risk, dividend-paying stocks may be attractive. For example, AT&T’s dividend yield is currently running at 5.3%, and pays out approximately 73% of its earnings as dividends. This means that you will receive $5.30 for every $100 you invest in the stock. Of course, that can change over time as earnings and share prices fluctuate, but the risk is relatively low with these types of blue chips.

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Finally, staying with blue-chip companies, corporate bonds are also an option. While these do not generate quite the same levels of income as corporate dividends, they still are substantially better than treasury bonds at this point in time. However, if you do decide to move into corporate bonds, make sure that you pick companies that have at least an AA rating – and avoid junk bonds unless you’re willing to take on substancial risk.