While some people set up their investment portfolio in order to grow their bottom line, others want their investments to provide a steady income. If you want your dollar deposits to provide income, take the following three steps:
#1. Create an “income oriented” financial plan
Look at the overall economy when creating your financial plan. This is because if your investment income doesn’t meet inflation, you’ll actually lose money in real terms. That’s because the value of your portfolio will not go up fast enough to keep pace with inflation. Even if your account balance remains $100,000 from year to year, if inflation is 3%, your money will only buy $97,000 worth of goods. If you want to stop losing money, make sure that the part of your portfolio designated to safer investments like bonds, actually pays you a yield that matches (or beats) the current inflation rate.
#2. Choose the right bonds
The right income-oriented investments for you may not be the highest yielding bonds. Don’t assume the bonds with the highest interest rates are best. Often high-yield bonds are called junk bonds because the rating agencies believe that there is a greater chance that these bonds will default, compared to other bonds. If your financial plan calls for investing in high-yield bonds, speak to your investment advisor about using bond funds or money managers who have experience balancing risk and reward in this field.
#3. You can make money on bank deposits
If your monthly bank statements show a yield of nearly 0%, it may be time to consider Certificates of Deposits (CDs). Investment advisors can buy FDIC-insured Certificates of Deposit which actually pay a reasonable interest rate. Looking for safety as well as return? Consider using CDs as part of your overall asset mix.
Retirees especially need to concern themselves with the income from their portfolios. Click here to download a free copy of my book, The Retirement Planning Book, or call my office at (02) 624-2788 if you have specific questions about investing in bonds.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published November 30, 2018.