Strategies for Creating Monthly Income

Practical Ways to Live Off Your Investments Each Month

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Years ago, people would work for a company for most of their adult life, and when it was time to call it quits, they would receive a nice watch and a pension.

Today, most people work for many different companies for their adult life. Only a few get that gold watch, and even fewer get the pension that once went along with it.

Fortunately, with the proper planning, investors can use a mix of different fixed income products and create their own stream of monthly income to support themselves in retirement (or even in a very early retirement).

Here are some suggestions for ways to bring in a regular stream of cash.

Mutual Funds Designed for Monthly Income

The idea of living off your investments with a steady monthly income stream isn't new, and multiple financial firms offer mutual funds designed to produce that income stream.

When evaluating possible mutual funds as investments, take a close look at the ratio of stocks to bonds. Many funds set up to produce monthly income will include both, but funds that include a high percentage of stocks tend to be riskier than those that include mainly (or solely) bonds.

Of course, funds that include a high percentage of stocks also may have higher rates of return than funds with a high percentage of bonds. Your choice will depend on your tolerance for risk, and on your overall financial goals.

Investing Directly in Dividend-Paying Stocks

Investors who are comfortable putting their money directly into stocks, as opposed to investing in mutual funds, can develop a regular income stream by investing in dividend-paying stocks.

Larger, well-established companies traded on the New York Stock Exchange often pay quarterly dividends. Companies in the energy or financial sector often pay strong dividends, as do public utilities.

If you choose your stocks well, you can enjoy the best of both worlds: regular dividend checks, and a significant increase in stock price.

Parking Cash in Money Markets and Certificates of Deposit

Money market accounts and certificates of deposit (CDs) are very safe investments that can be used for monthly income. Both are insured by the Federal Deposit Insurance Corporation (FDIC), which means you'd get your money back (subject to FDIC rules and limits) if your bank went bankrupt. (Note that money market mutual funds are a different type of entity, and are not FDIC-insured.)

There are some disadvantages to these two methods of creating a monthly income stream. Both CDs and money market accounts typically have minimum deposit requirements. When you buy a CD, specifically, you can't cash out your money until it matures, making it the wrong investment for someone who may need immediate access to the cash.

Most importantly, the rates paid by both money markets and CDs are significantly less than what you would expect to earn from stocks or income-producing mutual funds. Therefore, for someone looking to generate enough income on which to live, these shouldn't be a primary choice.

Other Investments to Generate Monthly Income

There are various other options for creating a monthly income stream, ranging from investing in rental real estate properties to creating YouTube videos and monetizing them with ads.

However, the tried-and-true investment strategies above likely will serve the beginning investor best.