Where are people investing for income these days?

[disneysteve]

Do we have any income investors here? Where are you putting your money if you depend on a monthly or quarterly payment to help meet your expenses? CDs are paying very little. Bonds aren't much better. Dividend stocks are having trouble. Without taking on undue risk, is there anywhere left to get a decent and reasonably safe return on your money?

[Like2Plan]

We have a higher than normal amount of cash. I don't see any point to tying up money in bonds which are not really paying any interest to speak of. We have a bit of money still in savings bonds paying 4% and another account that pays a guaranteed minimum 4.5% interest and a few short term CDs (paying 2.4%-due to mature before the end of the year).

Most everything else is in index funds and a couple of individual stocks. As you mentioned, the dividends are problematic. Stocks: Disney (suspended the dividend) and D--just recently sold off the natural gas component of the business and is reducing the dividend by about 30% IRRC. The total stock market pays dividends, but who knows what that will amount to with so many companies reducing or suspending dividends. The total bond market pays interest each month, but with the underlying interest rates going down--that's bound to go down, too.

I don't see any real good alternatives (besides cash) for money needed for expenses within the next 1-3 years.

[disneysteve]

I don't see any real good alternatives (besides cash) for money needed for expenses within the next 1-3 years.

That's the problem. I'm asking regarding my mother, not us. Like many retirees, she has always depended, in part, on interest and dividends for income so that she didn't need to spend principal. She's had a fairly large bond portfolio but little by little, they have been redeemed and there's just nothing worth buying to replace them with. So she started having more cash. We bought CDs for a while but now those are of little value as well.

It may be time for her to start dipping into principal. She will be 90 in 3 weeks so it's not a terrible thing if she has to start spending some of her assets but I know she won't like that suggestion.

[Singuy]

I haven't updated my peerstreet or lending club in awhile. I have stopped lending club just to see if I am actually getting a real return on my money or it's just reinvesting causing the return but will crash if I stop reinvesting. So it has been a year since I stop reinvesting and it's showing a 6.5% return. Not bad.

Peer street I do have some defaults and did go through a foreclosure. Eventually got my principle back which is fine, just some dead money sitting in there for a year or two. But with those defaults, my average has been 7.5% return. Not bad. My only gripe is there are just not that many supply of houses and you can't invest 50-100k into one house as the risk of foreclosure can lock that money up for years. So when you only invest 1-3k per house, you can only invest so far. Also there are time delays on return as turn over for your money is pretty high. Most people just want it for 4 months so basically you only get 3 months of interest out of it due to waiting for closing and such.

I would probably go with microsoft or something as a dividend appreciating stock. Probably won't touch a CD.

[Fishindude77]

I've got an individual stock that kicks back good quarterly dividends, and make a decent return on our farm land. Between the two close to $50k annual income.

Look around for some good dividend producing stocks, there are still a few good ones out there.

[kork13]

Probably not quite what you're asking for... But the only real income-producing asset that I have and partly rely upon is a paid-off rental property. It does (and has for the last ~4 years) reliably provided ~$1k/mo profit above expenses. In all, I earn an ~8-9% ROI. Lower than it could be in the investment RE world (often up to double that), but considering it was previously my own home, bought brand new, and primarily as my own home with only a secondary interest in later renting it out, it does pretty well for me.

Now, is your mother keen on becoming a landlord? I expect the answer is no, and I know that you've said in the past you're not interested in RE yourself either. But if done properly, it really can be a good option. Buy a good property, research and hire a really good property manager, and RE can be fairly simple to own & manage. Honestly, I love my property manager, because I've found them entirely trustworthy, reliable, and attentive. I pay them handsomely (10% of rents + occasional fees), but they've allowed me to earn a good, reliable income while owning the property at arm's length. The only involvement I need to have with the property is checking the cashflows monthly (which the PM reports to me), paying taxes/insurance/HOA annually, and occasionally (maybe 2-3x/yr) responding to questions about specific repairs or other minor issues. The PM advertises & maintains the property, finds & vets renters (for me to approve), regularly inspects the property, and handles all interactions with the renter. They definitely eat into my profits, but over time, the reliability of the income has made them highly valuable. Done well, you can get quality, long-term renters into a property that produces a highly reliable income stream.

Just a suggestion to consider... I know it's not going to be high on the list, but it could be a viable option for her. Investing $150k into a single ready-to-go rental property could probably produce cashflow of ~$800/mo (~6.5% direct ROI), plus she'd also be able to write off the expenses for tax benefits, and the home would slowly appreciate in value as well (likely bumping ROI to at least 9%). Do that for multiple homes, and you can do even better -- PMs charge incrementally less for multiple properties, directly boosting your bottom line. Plus, with multiple properties, you get multiple income streams that can level out a vacancy in one while others are still producing. (Note: that all ignores the more involved option of buying a 'distressed' property and investing the time/money/effort to produce a significantly higher ROI).

Another related option.... for a totally hands-off investment, perhaps consider REITs. If you buy into a single specific REIT, there's alot of due-diligence research to do. But there are also REIT mutual funds that will moderate your risks (and returns) with far less due-diligence required.

There's no escaping the fact that RE is a far higher-risk income stream than CDs, bonds, and so forth.... But the returns are there to offset those risks.

[disneysteve]

Just a suggestion to consider... I know it's not going to be high on the list, but it could be a viable option for her.

Thanks for the idea, but no, not on the list at all. If she were to do this, it would really be me doing it with her money and that's not happening.

I'll have to research and see if I can find a decent stock or two with a reasonably stable dividend. It doesn't have to be super high. Something around 3% would be great. There must be some solid companies out there that can provide that.

[kork13]

Thanks for the idea, but no, not on the list at all. If she were to do this, it would really be me doing it with her money and that's not happening.

I'll have to research and see if I can find a decent stock or two with a reasonably stable dividend. It doesn't have to be super high. Something around 3% would be great. There must be some solid companies out there that can provide that.

Not surprised, and makes sense.

Utility companies tend to be good for dividends. Verizon/AT&T, power companies (ex: Southern Company), that sort. The stock price will be variable, but over time the dividends themselves generally continue fairly strong. I don't currently do it myself, but if I were seeking stock dividends, I'd probably go there first.

[disneysteve]

Not surprised, and makes sense.

Utility companies tend to be good for dividends. Verizon/AT&T, power companies (ex: Southern Company), that sort. The stock price will be variable, but over time the dividends themselves generally continue fairly strong. I don't currently do it myself, but if I were seeking stock dividends, I'd probably go there first.

She owns a few utility stocks. I think they are all purchases that were made by my father and he's been gone for almost 28 years so she's had them a long time. We haven't made any new stock purchases for ages. I think she'd be open to that option. Now to find a couple of good prospects.

[Jluke]

AAPL? For dividends

or maybe not. Might only be 1% or so

[~bs]

options are the same as they always were, except fixed "safe" income is paying less.

I will highlight kork's post though. I have a paid rental that averages me $700/month after expenses. Income notthat great considering how much property cost, but pretty cool that income can keep going on for decades, increasing as the market increases, and not subject to low money market rates. At some point during this crisis, I'd like to buy another. That steady income is pretty much going straight into investments, where eventually it'll get rolled into a new property.


Sidenote: I'm not suggesting anyone evade taxes, but it is common for owners to write off repairs and upgrades on their primary residence with their rental property since it's almost impossible for the IRS to really prove the improvements were for the rental without doing a full blown audit. Which they're not doing for so little taxes at stake. People also write off vehicle expense and mileage. These things add to the attractiveness of rentals for some people.

[kork13]

At some point during this crisis, I'd like to buy another.

I meant to say it in my original post... but buying and holding a series of rental properties is definitely a strong part of our retirement plans. As I see it, my "retirement stool" has 4-6 legs: 401k/IRA accounts, rental RE properties, military pensions, regular taxable investments, perhaps a low-hours job or business interest to stay busy, and maybe SS (depending on what condition it's in 30+ years from now). Now that we'll be living in a paid-off home as well, a large portion of our savings will be directed toward preparing to buy additional rental properties. The goal is to have at least 2-3 rental properties by the time I retire from the military in ~8 years, and then to continue buying more over time.... Maybe build a small property management business for ourselves.

All of that to say/reiterate... RE is definitely a very good option for earning an income from your investments. You just need to have the stomach for it, which many people (for a variety of very good reasons) may simply not possess.

[disneysteve]

All of that to say/reiterate... RE is definitely a very good option for earning an income from your investments. You just need to have the stomach for it, which many people (for a variety of very good reasons) may simply not possess.

I was talking with my friend and CPA the other day. He and his wife own a number of rental properties (I'm not sure how many but it's not just one or two). He was telling me how they got screwed by COVID. They had a non-paying tenant and were in the process of starting the eviction process back in March but before they were able to finalize it, the government froze any evictions. Now it's July and this tenant hasn't paid rent since late 2019 and they can't do a thing about it.

Also, apparently the government issued a rule that tenants could apply their security deposit to the rent and then have 6 months after the state of emergency ends to pay it back (I think that's what he said). So now a bunch of tenants are taking advantage of that and asking their deposits to be applied to their rent so he's out that money, too, and has to hope that they pay it back.

I realize this is an unprecedented situation, but it does show how things can go wrong that you never expect.

[kork13]

I realize this is an unprecedented situation, but it does show how things can go wrong that you never expect.

Totally true, and as I mentioned, RE inherently has more risk involved than fixed income investments. I'm honestly quite grateful that my tenants haven't had any problem continuing to pay their rent. Perhaps if they weren't paying through all of this, I might be singing a slightly different tune... Though we were prepared to offer some leniency to our tenants (reduced rent, penalty-free delayed payments, etc.), so our eyes were wide open about all this when the effects of the pandemic started to take hold. ETA: But that's also one of the benefits of only owning paid-off rentals -- it's a big reason why we'll never use debt on rental properties. Way more security & flexibility.

But those people refusing to pay their rent must understand how short-sighted & ill-conceived that plan must be... Once evictions are allowed to proceed (and there's a pent-up glut of them waiting in the wings), they're going to get: 1) evicted; 2) sued for back rent; 3) have a really hard time finding a new place to rent -- what decent landlord is gonna check with a prospective tenant's previous landlord, discover that they didn't pay rent for months on end, got evicted, and still be willing to accept them as a tenant? I know I wouldn't...

But in any case, we've veered off course... I don't want to push RE at you, knowing that you're not interested. It's just personally one of my preferred options.

[~bs]

Crisis is unprecedented and tons of ways it negatively affected folks. The number of small businesses that shut down and people that lost their life savings is insane, as an example. The people that lost their lives or permanently disabled, as another. People that panicked when the market crashed and sold out is another. Then there's people who can't afford to pay their mortgages... yes it's deferred like rent, but it will come due and they can't walk away from it like renters can. Losing some months rent is small potatoes in the grand scheme of things.

Even renters that walked away from their obligations may not get away with it free and clear. The landlord will likely sue and seek civil judgement against you for the rest of the rent due. Also highly doubtful you'll be able to rent from any landlord that pulls a credit report on you as long as the blemish is on the report. If a renter truly has trouble meeting rent, the best option is always to try to work things out with the landlord.