High yield investments offer additional income, but high returns go hand in hand with greater risks. Too many people get caught up in the yield, as if it was free money. It's not. When you evaluate investments that appear to pay more you should approach them like Sherlock Holmes… with a healthy degree of skepticism. Be sure to question everything, and pay attention to the details.
Doing your detective work means knowing how the high yield investment generates its returns, and what factors would cause those returns to go down. You should only consider buying after you understand these factors.
Start your search for yield with the list below. Just don't forget, although they may generate a significant amount of monthly income, with high yield investments, expect your principal to fluctuate, sometimes drastically. The reward for such risk? Yields which are significantly higher than safer alternatives like treasury securities.
High Yield BondsHigh yield bonds are issued by companies whose financial strength is not rock solid. They must pay a higher yield than other safer alternative in order to attract investors. You can buy individual high yield bonds, but most investors would find high yield bond funds to be a more attractive and diversified option. Learn more about high yield bonds:
Real Estate Investment Trusts (REITs)Think of a REIT like a mutual fund that owns real estate. The REIT then passes along the rental income from that real estate to you, the investor. REITs can be publicly traded or private, and may own a broad portfolio of real estate or a narrow one. Through REITS you can invest in apartments, hotels, office space, retail space, healthcare related properties, mortgages, storage and other types of real estate related property. Learn more about high yield investing with REITs:
Preferred StocksTechnically a preferred stock is an equity investment, but they often get compared to bonds as they are highly interest rate sensitive. Preferred stocks pay dividends at a fixed rate and a company is required to pay dividends to their preferred stock holders before a single penny gets paid out to common stock holders. This feature can make them an attractive source of high yield investment income. The two resources below provide accurate and detailed information on preferred stocks:
Dividend Paying StocksDividends from stocks can provide a steady source of retirement income, but keep in mind if the company gets in financial trouble they can reduce or eliminate the dividend all together. You can do your own search for stocks with a history of steady and rising dividends or you can buy a dividend income fund. Search for high yield stocks and funds:
Closed End FundsA closed end fund is a form of a mutual fund. Like a mutual fund, it contains a pool of investor money. Unlike a mutual fund, once the fund has issued a certain number of shares, it closes to new investors, so to buy shares you must buy them just like you buy a stock; on an exchange from someone else who is selling their shares. Many closed end funds use leverage (they can borrow against the portfolio to buy additional investments) which can contribute to their high yields. Not all closed end funds are structured to pay income, and some can distribute principal as part of their monthly or quarterly distributions, so search carefully. When using closed end funds keep in mind it is best to buy these high yield investments when they are trading at a discount. Learn more about closed end funds:
Retirement Income Funds – A New Kind Of High Yield InvestmentPut together by the mutual fund industry, retirement income funds are professionally managed with the objective of generating consistent monthly or quarterly income. They provide an attractive alternative to managing your own portfolio and can also function as an alternative to an immediate annuity. In the first article listed below, I’ve profiled four of the most popular retirement income funds and provided expected payouts. Find details on retirement income funds:
- Retirement Income Fund Reviews And Expected Payouts
- Business Week: Retirement – Funds To Keep The Income Flowing
Master Limited PartnershipsA master limited partnership is a publicly traded partnership which, unlike a corporation, passes its income through to you, the investor. This structure allows the company to avoid paying taxes at the corporate level, which is one of the reasons they make attractive high yield investments. The amount of income generated by a master limited partnership will be dependent on the price and volume of the product or service they produce; most often they are in the oil and gas business. You’ll also find master limited partnerships that produce propane, timber, and manage pipelines. Learn more about master limited partnerships:
- Master Limited Partnerships – An Island Of Stability For Dividend Investors
- Master List of Master Limited Partnerships From The Yield Investor