Passive Income Pursuits: Exploring Investments For A Steady Monthly Cash Flow

There are a variety of investment options that can provide a monthly income, each with its own level of risk and potential return. These include savings accounts, certificates of deposit, dividend-paying stocks, bonds, annuities, rental real estate, and business ownership. The best option for you will depend on your financial goals, risk tolerance, and investment horizon.

For example, if you are a senior citizen, a senior citizen savings plan may be a suitable option as it is backed by the government and offers an annual interest rate of 8.2%. Alternatively, if you are looking for a low-risk investment, government bonds or savings accounts may be more appropriate.

It is important to note that investing always involves a risk/reward trade-off. The lower the risk, the lower the potential return, and vice versa. Diversifying your investments across different asset classes and platforms can help mitigate risk and potentially increase your returns.

Consulting a financial advisor can be helpful in building a portfolio that aligns with your goals and risk tolerance.

Savings accounts

UFB Direct

UFB Direct is known for its high-yield savings account and money market account. The UFB Secure Savings account has a very competitive yield and doesn't have a monthly service fee. It also offers ATM access and mobile deposit. There is no minimum deposit to open this account.

Bask Bank

Bask Bank is known for its Bask Interest Savings account, which offers a competitive APY and doesn't require a minimum opening deposit. However, you'll need to fund your account within 15 days of opening it, and there is a $35 fee for outgoing wire transfers.

EverBank (formerly TIAA Bank)

The EverBank Performance Savings account earns more than the national average APY and has no minimum deposit requirement. There is also no monthly maintenance fee.

Popular Direct

Popular Direct offers some of the highest savings yields, but it has a high minimum deposit requirement of $100. There is no monthly maintenance fee, and you can deposit checks through the bank's app.

Salem Five Direct

Salem Five Direct is the online division of Salem Five, a bank founded in 1855. Its eOne Savings account only requires a $10 opening deposit and doesn't have a monthly service fee or minimum balance requirements. You can also mobile deposit checks. However, there might be a fee for exceeding the bank's six transfers in a calendar month.

CIBC Bank USA

CIBC Bank USA offers a competitive yield on its CIBC Agility Online Savings Account, which has no monthly service fee. The savings account has a lower minimum opening deposit amount of $1,000. However, there is no ATM access, and you won't be able to make external transfers during the first 30 days of having the account.

CIT Bank

CIT Bank offers multiple savings accounts, including the Platinum Savings account, which earns a high yield on balances of $5,000 or more, and the Savings Connect account, which can be opened with just $100. There is no monthly maintenance fee for these accounts.

Citizens Access

Citizens Access is the online bank division of Citizens Bank. It offers a high-yield online savings account with no maintenance fee or account opening fee. All balances currently receive the bank's competitive APY.

Capital One

Capital One has competitive yields on its savings accounts and doesn't charge a monthly service fee. The Capital One 360 Performance Savings Account can be opened with no minimum deposit. Customers can also set savings goals and establish automatic savings plans. However, there is no ATM card available for this savings account.

Dividend-paying stocks

When it comes to choosing the best dividend stocks, investors should look beyond a stock's yield and instead opt for stocks with durable dividends, buying them when they are undervalued. Dan Lefkovitz, a strategist for Morningstar Indexes, warns against chasing high yields, as this can lead to ""dividend traps". These are companies that have an attractive yield that is ultimately unsustainable.

David Harrell, editor of Morningstar DividendInvestor, suggests focusing on companies with management teams that support their dividend strategies. Harrell also recommends favouring companies with competitive advantages, or "economic moats". While a "moat rating" doesn't guarantee dividends, there is a strong correlation between economic moats and dividend durability.

• Johnson & Johnson (JNJ): A dividend aristocrat with a diverse revenue base, solid pipeline, and exceptional cash flow.
• Verizon Communications (VZ): The highest-yielding stock on Morningstar's list, trading 24% below the fair value estimate.
• Altria: The company behind Marlboro cigarettes, Altria has stated its intention to pay out most of its earnings as dividends.
• Exxon Mobil: An oil giant that recently acquired Pioneer Natural Resources, bolstering its hydrocarbon-focused strategy.
• Medtronic: The largest pure-play medical device maker, Medtronic has raised its dividend for 46 consecutive years.
• Starbucks: A well-known restaurant brand with a strong balance sheet, generating robust free cash flow.
• PNC Financial Services: One of the larger regional banks in the US, with a diversified fee base and a well-positioned balance sheet.

Rental real estate

Overview

Purchasing rental real estate is a common way to invest in real estate, but it requires knowledge of leasing practices, mortgage loans, tenant-landlord relationships, and property management. It can be a lucrative investment, providing a passive and steady income, but it also requires a commitment of time and money.

Things to Consider Before Investing

• Financial situation: Do you have sufficient funds to cover maintenance, insurance, and mortgage payments between renters?
• Risk and headache tolerance: Are you prepared for the potential risks and challenges of being a landlord, such as fluctuations in rental prices and finding reliable tenants?
• Time commitment: Can you dedicate time to choosing the right property, preparing it for rent, and managing ongoing maintenance?
• Location: Look for areas with low property taxes, good school districts, walkable amenities, low crime rates, easy access to transportation, and a growing job market, as these factors attract renters.
• Financing: Consider your credit score, down payment amount, debt-to-income ratio, and whether you'll use equity from another property. Lenders typically have stricter requirements for rental properties, with higher interest rates and larger down payment expectations.

Managing the Property

You can choose to manage the property yourself or hire a property management company, which typically charges between 8% and 12% of collected rents. A property manager can arrange maintenance, screen tenants, and handle late rent payments.

Legal and Insurance Considerations

Familiarize yourself with landlord-tenant laws in your state and locale, including security deposit, lease requirements, eviction rules, and fair housing laws. Consider purchasing landlord insurance, which covers property damage, lost rental income, and liability protection in case of tenant or visitor injuries due to property maintenance issues.

Calculating Returns

A common way to calculate returns on a rental property is using the formula: ROI = (Annual Rental Income - Annual Operating Costs) π Mortgage Value. Wall Street firms investing in distressed properties aim for returns of 5% to 7%, while individuals should target a higher return of around 10%.

Risks and Benefits

However, there are risks to consider. Maintenance costs and property management expenses can reduce your rental income, and there is always the potential for unexpected repairs or damage. Real estate is not a liquid asset, so it may take time to sell if needed.

Alternative Approaches

If you want exposure to the real estate market but don't want to be a landlord, consider investing in Real Estate Investment Trusts (REITs) or using online real estate investment platforms. REITs are companies that own commercial real estate, and you can invest in them through brokerage firms, similar to investing in mutual funds. Online real estate platforms connect investors to real estate projects, but they may require a higher initial investment.

Private credit

There are several types of private credit investment strategies, including senior direct lending, subordinated loans, and lending to distressed borrowers. Senior direct lending involves senior secured loans made directly to middle-market companies, while subordinated loans are made directly to businesses and sit between senior debt and equity. Distressed and niche strategies involve complex financing arrangements or the restructuring of capital structures.

It is important to note that private credit involves risk, and investors should carefully consider their risk appetite and conduct due diligence before investing. Private credit loans are typically floating-rate, which means that the interest owed by the borrower will fluctuate with changes in short-term interest rates. The creditworthiness of the borrower is a key factor in determining the risk and return profile of private credit investments.

Gold

• SPDR Gold Shares (GLD)
• SPDR Gold MiniShares Trust (GLDM)
• IShares Gold Trust (IAU)
• VanEck Merk Gold Trust (OUNZ)
• Abrdn Physical Gold Shares ETF (SGOL)

Digital Gold

Digital gold is another option that allows investors to buy gold online without having to worry about storing the physical metal. Platforms like MySIPonline offer gold investment plans where investors can accumulate money for buying gold over a specific period, investing on a monthly basis.

For those who prefer to invest in physical gold, buying gold bullion is an option. Money Metals Exchange, for example, offers a monthly purchase plan where investors can automatically purchase gold bullion and have it delivered to them or stored securely at the Money Metals Depository.

Frequently asked questions