A Wealthy Retirement Special Report:

The Top 5 Monthly Income Funds

It’s the dream for income investors and retirees...

Collecting cash payouts every month like clockwork.

But getting your investment funds and stocks to pay out on a consistent basis is no easy feat.

Many of them pay on a quarterly or biannual basis. So once you’ve properly allocated your assets, your scheduled payouts are top-heavy a few months of the year. And the remaining months, you simply have to tighten your belt.

That’s no way to pay your bills and keep your lifestyle on track.

You need scheduled payments to arrive on time every month - no questions asked. At Wealthy Retirement, we know this.

So I put our Research Team to work scanning the markets for the best monthly income funds.

And to no surprise, we quickly discovered that fixed income funds were the ticket. But not just any fixed income funds... They had to pay out monthly and have reasonable expense ratios.

Before I give this monthly payer list, let me explain exactly what “fixed-income” means...

Scheduled Cash Payments

Fixed-income securities are investments that provide a return in the form of fixed periodic payments. You receive these payments monthly, quarterly, semiannually, annually, etc... until the security matures. And at maturity, your principal investment is returned to you.

Most government and corporate bonds fall into this category. When you buy a bond from, say, the U.S. government, the government is actually borrowing money from you. In return, it will pay you annual interest payments and give you back your money upon maturity.

Here are some important, common vocabulary words used in the bond segment of the fixed-income world:

  • Issuer - the entity (government or company) that issues the bond in order to borrow money. As the borrower, it has to pay interest and repay capital upon maturity.
  • Maturity - the date that the issuer must return the principal investment back to the lender. This is the end of the line for the bond.
  • Principal - the amount of money an issuer borrows that must be repaid to the lender upon maturity. It is also known as the maturity, or face or par value.
  • Coupon - the annual interest the issuer must pay to the lender. It is expressed as a percentage of the principal. For example, if a company offers a bond priced at $1,000 (expressed as 100) with a 5% coupon, lenders would receive $50 in coupon payments over the course of a year.
  • Issue - another term for the bond itself.
  • Default - when an issuer misses a payment. If it does, the issuer is in default. Depending on the law and structure, the lender may be forced into bankruptcy. But it depends. Some issuers default and then restructure, so lenders can get a portion or all of their money back. Regardless, it’s not a word you want to hear if you're a bond holder.

Looking over those definitions, this kind of investing might feel a bit complex at first, but fixed-income securities are a straightforward game where everything is defined beforehand.

That's what makes them attractive: They provide a constant and secure return.

These differ from "variable-income" securities, which have payments that fluctuate with an underlying measure such as short-term interest rates. With fixed income, you know exactly what you’re getting paid in advance - and it will not change.

Retirees, in particular, tend to gravitate toward fixed-income investments. A retired person can live off the regular, dependable payments provided by bonds, which won't consume their principal.

For most people, it's a good deal. You invest your money, collect the coupon payments and get your money back when the bond matures. It's the closest you'll ever get to becoming a bank.

And just like stocks, bonds can be bought at a discount (below par) and sold for a higher price, or premium (above par). This means there are opportunities for outsized capital gains if the situation arises. Can't complain about that.

Top-Notch Fund Shopping

When looking for the best fixed-income funds, you want to make sure costs are low and returns are high.

Important attributes of top-notch funds include:

  • Lack of Leverage - Leverage is used by many funds to amplify investment returns. It’s the same basic concept as when an individual investor leverages his brokerage account - borrowing against his current holdings to buy more securities. This is dangerous for a few reasons. While it can amplify your gains, leverage can also amplify your losses. Plus, over time, leveraged funds experience value decay due to daily resets. There are countless cases where they substantially underperformed their underlying indexes, even if returns were positive.
  • No Load/Commission - Many funds charge you a commission to buy or sell them. This is known as a load. You want to avoid funds with loads as much as possible. There are plenty out there that don't charge commissions. Hone in on those.
  • Low Expense Ratio - The companies that operate funds charge you money to operate them. This charged cost is known as the expense ratio. This is another important attribute to keep in mind. You want to make sure the expense ratio is not too big. In today’s world of low-cost index funds, you want to find managed funds with expense ratios below 1% if you can. If they’re any higher than that, make sure the funds in question are beating the pants off their underlying indexes.

So we have three important attributes you want to look for when you’re fund-shopping. And past returns and sizable yields are also important. Funds that have outperformed their peers in the past tend to outperform them down the road as well. Plus, those with above-average yields provide investors with juicier income.

So keeping all these top-notch attributes in mind, we’ve come up with a list of the top five monthly-paying fixed-income funds. For anyone who prefers passive investing coupled with reliable income, these are a great resource while you’re performing your own due diligence:

The list above provides you with fixed-income funds that aren’t leveraged, are commission free, have low expense ratios, pay a nice yield (the average is 3.28%) and - most importantly - pay investors on a monthly basis.

But before you jump into some of the funds on our list, you need to know there’s a better way to invest in fixed-income securities.

The Downside to Bond Funds

Yes, we have a solid list of fixed-income funds above. There’s a reason they’re on our top five list.

But bond funds have a downside. Unlike owning a bond that you can hold until maturity - at which time, all your capital will be returned - funds rise or fall in price depending on the value of the bonds they hold.

Therefore, in a low-interest rate environment like we’re in now, the likelihood of making money (or even recovering our entire initial investment) on them over the next few years is slim. After all, as interest rates rise, bond prices fall. And with interest rates so low, there's very little room for them to fall farther.

So if rates rise in the next year or so - and they’re projected to do so - bond prices must fall. And these funds will fall with them.

Since you can't hold the fund to maturity to regain your principal, you will have to sell at a loss or wait until interest rates get pulled back down. That could be a long time.

How to Play Bonds in a Rising Interest Rate Environment

Now, this isn't all bad news for fixed-income investors. First, when interest rates rise, it allows investors to buy bonds at a discount. Can't complain about a deal.

Second, long-term bonds get hit much harder by interest rates rising than shorter-term bonds. Owning shorter-term bonds, particularly of the corporate variety, is a great way to play the current environment.

This is an approach The Oxford Club's Bond Strategist Steve McDonald is constantly harping on. He believes it’s the only way to play the fixed-income game, and he has the track record to prove it.

And in this video - likely to become Steve’s most controversial ever - you'll discover how to make up to $63,364 in cash income... that you can start collecting today. Every penny is legally owed to you!

The best part is that this little-known strategy does NOT involve stocks, risky options or anything speculative. And $63,364 is just the entry level; there’s really no limit on how much you can collect.

If you're ready to discover an income stream so well hidden that most people don't even know it exists... I invite you to watch Steve’s latest presentation now.

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Good investing,
Ryan Fitzwater
Director of Research
The Oxford Club