High Yield

People are constantly looking to get more bang for their buck when it comes to investing. Perhaps one of the easiest ways to do that is with investments with a higher than average yield. With this strategy, not only can investors enjoy income plus the possible appreciation of their investments when markets rally, but also increased protection from a downturn. These are the main reasons why income investing has been so popular for so long, passive income and protection.

One of the greatest investors of all time, Warren Buffett, collects billions each year from investing in stocks that generate a substantial amount of yield, or in this case, dividends. For many, these investments are the obvious alternatives to leaving money in products like savings accounts or CDs, which likely earn under 0.1%.

This method allows investors to take a very passive approach when trying to increase income. According to CNBC, 64% of Americans are now living paycheck to paycheck, which is why it can be so important to build a portfolio using this strategy early on in your investing timeline.

This passive style of investing comes with a wide range of options where investors can expect consistent payments over the life of the investment. That’s what makes this strategy attractive to so many investors. The capital used to purchase the asset is now yielding additional capital to either put in your pocket or reinvest. 

What Are High-Yield Investments?

There are several different ways to enact a high yield investment strategy, with the most common examples being; stocks and funds that pay dividends, bonds, and real estate.

With dividend-paying stocks, you are able to collect income in addition to any appreciation your stock may experience. These stocks generally don’t experience massive price increases like those of growth investments. However, their passive income makes up for this lack of appreciation. Instead of chasing growth and aggressively investing profits back into the business, the company returns the cash to investors through quarterly dividend payments. Thus, you are being paid to own the asset. The more you own, the more you are paid.

Although we may not be collecting billions of dollars in yield every year the Oracle of Omaha does, this method is a safe bet for nearly all investors. Just be sure the dividend-paying company is of high quality. Coca-Cola is one of the greatest examples of dividend paying stocks as it has maintained its dividend for decades, providing investors, even Warren Buffett, with steady income for years. Investors can also turn to ETFs for added income. These funds are packaged in a way that explicitly targets underlying assets that pay a substantial dividend. 

Bonds, such as corporate bonds issued by companies with low credit ratings, are another great example. Companies issue bonds to raise money as an alternative to selling stock or taking out a bank loan. Often, these companies are deeply in debt or face other financial stress. Investors who purchase bonds receive interest payments (also called the coupon rate) until the bond’s maturity date, at which point the borrowed amount is repaid.

In the same way that a consumer with a low credit score will pay more to borrow, companies that are deemed to be greater credit risks by credit rating agencies will be required to pay higher rates when they sell bonds. The good news for investors is that several credit-rating agencies evaluate the risk associated with high-yield corporate debt and assign each one a grade. This makes it easier to research and compare different investment opportunities.

Real estate is yet another classic method to earn a high yield that has been around for hundreds of years. Although the barriers to owning traditional, brick-and-mortar real estate can be too high for some investors, there are still ways to get involved. A Real Estate Investment Trust (REIT) is the stock market equivalent to investing in a hard asset such as an apartment or office building. You own shares of the assets held by the fund, and any rent payments that are collected are then paid out to shareholders as dividends. 

Real estate investing is another one of the most reliable ways to achieve a high-yielding strategy, as dividends are paid out monthly as opposed to quarterly. In addition, these hard assets are long-lasting in an industry that will always be in demand.

Why Invest In High Yield?

So why high yield investments instead of other methods of investing? Take a bear cycle in the stock market, for example. Holding high-growth stocks or stocks that are saddled with a large amount of debt might not be such a great idea during times of higher interest rates, inflation, or a recessionary cycle.

Although these various investment vehicles aren’t completely spared from market cycles, they can help investors weather economic storms. Nobody enjoys seeing the stock market decline, but bear markets can be a long-term blessing for investors, especially those looking for passive income. For stocks, dividend yields increase when prices decrease, giving investors a bump in their payments.

As these individuals invest more and more of their extra capital over time, they begin to see the effects of compounding interest. These payments can be invested directly back into the stock, thereby increasing the investor’s stake and ultimately dividend payment. As these payments grow, investors begin to rely on the income generated by these investments, as they act as an additional source of income. 

The alternative is to put the yield payment in your pocket, as this predictable and consistent payment can make a huge difference. It allows people to increase their income streams, an important factor in growing wealth. Studies show the average millionaire has seven different streams of income.

How To Invest?

Like most investing strategies, there are many methods to select high yield or income funds. Whether it is real estate, bonds, or funds that pay dividends, the number of options can be somewhat overwhelming.

However, no matter the style of high-yield investment you’re after, Magnifi provides a wide selection of stocks, ETFs, and mutual funds you can choose from to achieve your desired investment goals.

Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.

The information and data are as July 8, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.