When John D. Rockefeller was asked how much money was enough, he replied: "A little bit more." If you're looking to make a little bit more on your investments, here are places to find extra cash. Unfortunately, rates are very low and the emphasis has to be on "little" rather than "more". Please note: none of these stocks or funds are recommended as "Buys". They may, however, be a good place to start research.
Dividends: Stocks usually pay these quarterly. There are mutual funds and mortgage related securities that pay monthly. Some stocks that have a long history of paying dividends: Altria (MO), Procter & Gamble (PG), Wal-Mart (WMT), 3M (MMM). A few mortgage related issues: Annaly Capital Management (NLY), Colonial Properties Trust(CLP), Equity Residential (EQR) and Essex Property Trust (ESS). The rule of thumb on divdends: the higher the yield, the riskier the investment. Better to receive less income with a safer investment than to receive no income at all.
Fixed income: There are several types of fixed income from the government: bills, notes and bonds. Bills are bought at a discount to 100. That is, you buy a $1000 one year bill at $997.50 and at the end of the year, you receive $1000. You earn .25% on that investment. Honest. That's where the rate is today. Notes are any investment that matures between 1 year and 10 years. They pay interest every six months. Right now a 10 year note yields 2.52%. The longer maturity investments, over 10 years, are called bonds. The 30 year bond pays 3.84% or $38.40 a year for each year you hold it. The one big advantage of government debt: it's guaranteed to be paid in full at maturity, even if Congress has to print the money to pay it. It owns the printing press. For more information see: www.treasurydirect.gov
Corporate bills, notes and bonds: They have the same maturity breakdowns of government debt: 1 year, 10 year, and beyond 10 years. They are best bought by owning mutual funds. That way you can have professional management in a part of the investing world that is best left to professionals. Bond mutual funds come in all sorts of flavors: short, medium and long term. Low, medium and high risk. Go to any mutual fund Web site such as AOL's Mutual Fund Center or Yahoo!Finance or MarketWatch or GoogleFinance to find Corporate Bond funds. A wise portfolio has short, medium and long term fixed income. It's called laddering. That way when interest rates rise, the shorter maturity holdings can be re-invested at higher yields when they pay off.
Certificates of Deposit: These are deposits in financial institutions that pay monthly, quarterly, semi-annually or annually, depending on the type of CD you have. Currently, 1 year CD's yield about 1.1%. CD's are insured at FDIC banks and thrifts for up to $250,000 so your principal is guaranteed by the government sponsored insurance program.
Money Market Funds: These are much like checking accounts only they pay interest. Right now, the interest is very small, but these funds were devised to give investors liquidity and some return. They used to be rock solid and almost guaranteed not to lose money. But with the mortgage market meltdown, some funds broke the $1 barrier (meaning that an investment of $1 was paid off at 99 cents or 98 cents or something less than $1). These are available at most banks and brokerage firms. Currently the highest paying financial institutions are paying 1.3%.
These are lean times for investors looking for "a little more" from their investments. That's why it's important to have some short, some medium and some longer term investments. At some point interest rates will rise again and returns will be richer. Right now, the key is to be well diversified and not to reach too far for yield. The higher the return, the higher the risk. Those fat yields are tempting, but remember, that's the market's way of saying investors don't believe the yield will last.
- Ted Allrich
August 24, 2010