5 Ways to Increase Investment Income
Friday, June 03, 2011
Say you’ve been sitting on cash in the bank for a few years now and you’re getting disgusted each month with the pitiful interest the savings account is generating. Or maybe you have a CD maturing and the bank is looking to renew for a few years at 2%. Where does someone that wants to generate higher income go in this low interest rate environment? Here are a few options, but all should be evaluated for risk and applicability to your investing needs:
Municipal Bonds
I do realize that you’re hearing every day about the dire situation our state faces, and it is true. However, Rhode Island has never had a municipal bond default, and debt service is a relatively small percent of the municipal budgets. Depending on your tax bracket, you could generate a 7% tax-equivalent yield by purchasing some individual bonds. There is also the Narragansett Municipal Fund, which is currently yielding almost 4% on a tax free basis.
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For equity positions, the focus has to be on companies that are paying a dividend. It doesn’t necessarily have to be companies paying the highest dividend. You want to look for companies that have a steady track record of increasing their dividend payout. There are also several funds that invest according to companies’ dividend history.
Global Bonds
As tenuous as things are here is the U.S., it can get even dicier when you head into the overseas bond market. As opposed to individual global bond issues, look to protect yourself by using global mutual funds with a proven track record, such as the Templeton Global Bond fund which is currently yielding over 5%.
Utilities
Despite the reputation of safety for utility stocks, they were derailed along with everything else in 2008. Still, you can buy individual issues with high yields or pick up mutual funds and ETF’s that generate close to 4%.
Investment Properties
Many clients ask about the possibility of picking up investment properties at depressed prices and generating income from the rents. While rents are on the rise as more people get pushed out of their homes, you still need to take the housing market into consideration. Prices show no sign of stopping their decline, so if you’re going to buy investment property, buy in a solid area with a proven track record.
Dan Forbes is a regular contributor on business financial issues. His office is in Providence, RI. He leads the firm Forbes Financial Planning and can be reached at [email protected]
