10 Ways to Invest for Income

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Since many Americans are enjoying more years in retirement, it’s become imperative for those approaching retirement to establish reliable streams of income they can count on.

That’s the aim of investing for income—having enough income, on a consistent basis, that allows you to cover your expenses, so you can avoid delving into the principal balance of your retirement savings.

Investing for income can come with less risk than the alternative, which is investing for growth through traditional stock market-based investments. That’s because fixed income investing is an approach focused on helping you preserve your capital, so you can use it to generate steady income, in the form of ongoing interest and dividend payments.

This is what makes investing for income such a viable option for more conservative savers who feel more comfortable knowing exactly what their investments will provide for them in the future.

So, now that you have a basic understanding of how investing for income can place you on the path to a more reliable retirement outcome than most traditional stock market-based plans can offer, let’s take a look at 10 different ways you can invest for income.

1. Government Bonds

Bonds are one of the most common types of fixed-income investments. They have a fixed interest payment and a fixed amount that has to be repaid at maturity, which is known as the par value.

One of the first things that comes to mind when people hear about investing in bonds is government bonds. Government bonds are debt securities issued by a government to fund government spending. They are issued by national governments and can be considered lower risk, since they’re backed by the government that issues those bonds.

For example, one type of debt security issued by the United States and backed by the U.S Treasury Department includes U.S. Treasury Bonds. U.S. Treasury Bonds are debt obligations backed by the U.S. Treasury Department that have maturities greater than 10 years. So, what if you’re not interested in tying up your money for more than 10 years? Well, that brings us to the second way you can invest for income: U.S. Treasury Notes.

2. U.S. Treasury Notes

U.S. Treasury Notes are another type of debt security issued by the U.S. government to fund government spending. It also has a stated rate of interest, and interest payments are made semi-annually until maturity. US Treasury notes are issued in two-, three-, five-, seven-, and ten-year terms.

If you feel that’s still too long of a period to tie up your money, then item #3 on our list might be for you.

3. U.S Treasury Bills

U.S. Treasury Bills are short-term debt obligations backed by the U.S. Treasury Department with terms of one year or less. Since these securities come in shorter terms, the interest they offer will tend to be lower than the two other options we just discussed.

What if you aren’t interested in U.S. Government bonds? Perhaps you would like to invest in something local where your money will go towards government projects that will improve or benefit your local area. If that’s the case, then take a look at the next item.

4. Municipal Bonds

Municipal bonds are debt securities issued by state and local governments to fund public works and usually go towards projects like building or improving parks, roads, bridges, libraries, or other infrastructure. One reason people buy municipal bonds is that they can provide tax benefits on the interest they pay.

However, the interest earned on municipal bonds can impact your social benefits and the tax you might be required to pay on those benefits. That’s why it’s important that you work with a financial advisor who is well-versed in the complexities of planning and saving for retirement before investing in these types of securities.

5. Corporate Bonds

Corporate bonds are debt securities issued by corporations to raise money to cover ongoing operations, mergers and acquisitions, or to expand their business. The term corporate bond is usually applied to debt instruments issued by a corporation with maturities of at least one year.

Corporate bonds can be classified into two categories. The first is high-grade corporate bonds, otherwise known as investment grade corporate bonds. The second category is high-yield corporate bonds, or junk bonds. The two distinctions are made based on, among other factors, the amount of risk that the bond holder takes on by investing in those bonds. In general, investment grade corporate bonds will offer a lower rate of interest compared to those in the higher risk, junk bond category.

6. Preferred Stock

Preferred stock is a class of equities, or stocks, that offer investors a fixed dividend and a par value. So, if the market value of the shares drops below the par value, investors will still receive the fixed dividend payment. If that company ever wants to redeem or call those shares, those shares get called back at par value.

7. Mortgage-Backed Securities

Mortgage Backed Securities (MBS) are comprised of a bundle of home loans bought from the banks that issued those mortgages. Investors who place their money into an MBS receive periodic payments similar to bond interest payments.

8. Business Development Company

A Business Development Company (BDC) is a type of closed-end fund that makes investments in organizations that are developing or in need of financial help. BDCs can offer high dividend yields and the potential for capital appreciation. Although BDCs do not have a par value, they do have loans to businesses inside their portfolios, and those loans do have a par value.

9. Certificates of Deposit

Many people forget that Certificates of Deposit (CDs) are another type of fixed income investment. They pay a fixed rate of interest in exchange for the customer agreeing to leave those funds in that account for a certain amount of time. Once the term of that CD is up, the investor receives their principal back. A problem with CDs is that if you have an emergency and need to access those funds, you could get hit with early withdrawal penalties. CDs are backed by the Federal Deposit Insurance Corporation (FDIC)—which means that the money you place in them is insured. There are limits to the amounts that are insured in each account, so it’s important to verify with your bank that the amount you are placing in that CD does not exceed the insurance limits.

10. Money Market Accounts

Sometimes called money market deposit accounts or money market retirement savings accounts, these types of accounts also fall into the category of fixed income investments, and most are also backed by the FDIC. They generally offer a higher rate of interest than a traditional retirement savings account and offer account holders the flexibility of being able to make occasional penalty-free withdrawals.

Ready to Know, with More Certainty, What Your Financial Future Holds?

As you can see, the common factor among the 10 ways you can invest for income is that you can know how much income your investments will provide you. You can also know when you will receive those interest or dividend payments. That’s why we like to say that by investing for income, you can know with more certainty what your financial future holds—the type of certainty that most growth-based investments can’t offer.

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Carter Financial Group is a full-service financial firm dedicated to helping those in the Texas area meet their long-term financial goals. Our team of financial advisors and wealth managers are experienced in helping clients preserve their savings, so they can use it as a source of steady income in retirement.

All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Carter Financial Group and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. Investing involves risk. There is always the potential of losing money when you invest in securities. Asset allocation, diversification, and rebalancing do not ensure a profit or help protect against loss in declining markets. All information and ideas should be discussed in detail with your individual advisor prior to implementation. The presence of this website, and the material contained within, shall in no way be construed or interpreted as a solicitation or recommendation for the purchase or sale of any security or investment strategy. In addition, the presence of this website should not be interpreted as a solicitation for Investment Advisory Services to any residents of states where otherwise legally permitted to conduct business. Fee-based financial planning and Investment Advisory Services are offered by Sound Income Strategies, LLC, an SEC Registered Investment Advisory firm. Insurance products are offered through our Affiliate Advisors Academy LLC.  Carter Financial Group and Sound Income Strategies, LLC are not associated entities. Carter Financial Group is a franchisee of Retirement Income Source. Retirement Income Source LLC, Sound Income Strategies LLC, and Advisors’ Academy are associated entities. © 2023 Carter Financial
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About Mandee

In preparation for continuing the family business and taking over full-time once Dee retires, vice president and Associate Advisor, Mandee Carter, has been working with her father and learning the ropes since 2017.

Mandee received a BS in Psychology in 2016, but began her career in financial services six years before that when she started helping in the office. After acquiring her degree, she came on full-time in March 2017 as Dee’s business partner and main Associate Advisor helping clients navigate the intricacies of successful financial planning.

In 2021, she was named an Elite Producer with American Equity.

In Mandee’s spare time, she likes to go to the gym and spend time with friends and family. She is an animal lover and has two German Shepherds, both rescued from a shelter. She enjoys meeting new people and helping clients.