Use Fixed Income Options to Earn a Better Return on Your Investments

Daniel Penzing
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Peer-to-Peer (P2P) Lending Platforms

A peer-to-peer, or P2P, lending platform is an online market that connects investors with borrowers. Beginning in person or through a simple posting on an online forum, P2P platforms can help you improve your return on investment for your retirement funds.

P2P platforms connect borrowers with investors for short-term loans backed by valuable property or an existing income stream. These borrowers may be companies, individuals or wholesalers that raise cash to finance business growth, expansion, or the purchase or refinancing of inventory and assets.

Those with cash to invest can loan their money to P2P lenders in return for interest payments. Alternately, an individual looking for a loan to make a down payment on a house, finance a business expansion, buy inventory, or refinance a mortgage may approach a P2P platform for a loan.

As a rule of thumb, the investor benefits by receiving a higher return than that offered by a bank, which is usually below 5% per year; the borrower benefits by receiving a loan with advantage over a bank’s loan terms. The P2P platform benefits from the arrangement by earning a fee for setting up the loan and facilitating the transaction between lender and borrower.

Treasury Inflation Protected Securities (TIPS)

Are a type of U.S. Government Bond whose principal is indexed to the Consumer Price Index to protect against inflation (source: Investopedia). Because they pay a fixed amount each year, they are counted on to provide a real return (after inflation) regardless of market conditions. As with every bond, the income from TIPS is subject to income tax.

Variable Rate Notes (VRNs) are a type of U.S. Government Bond whose principal is indexed to a specified basket of securities to protect against inflation. Because they are indexed, they are considered adjusted gross income. Bonds with an index of 90% to 100% receive a taxable income level of 90%. Bonds with an index of greater than 100% receive a taxable income level of 100%. As with every bond, the income from VRNs is subject to income tax.

Real Estate Investment Trusts (REITs)

A REIT is a type of corporation that buys real estate and businesses and generally derives at least 90 percent of its revenue from real estate related activities. REITs (pronounced “reet”) are required to sell at least 95 percent of their income in the form of shares.

INTEREST RATES…

One of the reasons why a REIT is such a consistent income earner is because it pays the highest cash flow because of the low debt ratio. You generally find REITs in areas of the country that have stable real estate markets and consistent occupancies. This allows the various money-making activities of REITs (such as mortgage origination and leasing commercial property) to generate predictable and steady income.

The income stream is delivered through the form of dividends. The best part is that dividends are not only paid quarterly but also compounded. This means that REIT shareholders benefit from additional cash dividends added on to prior quarterly dividends on an ongoing basis.

The funds you will require to invest in REITs can range from a couple of tens of thousands of rupees to about a lakh of rupees over a ten-year period. Many mutual funds offer one or a combination of these REIT schemes. You will be able to invest in units of varied value and range of tenures.

High Yield Dividend Stocks

A major mistake that bigger investors make is believing that you need to buy shares from a big company in order to get good returns on investment. With huge annual revenues, large corporations should be able to make a lot of money for you, right? The truth is that you can earn a much better return from various smaller companies with great dividend stocks.

In an economy as fickle as what we have today, you need to diversify your investments as much as possible in order to minimize risk.

Do you think a stock from a company that operates only in the meat-processing industry will appreciate in value if there is a widespread food contamination scandal?

Guess again; the share price of any stock is at the mercy of its industry. Buying stocks from diverse industries, such as healthcare, consumer goods and energy, will help to mitigate the risk even if your stock selection isn’t perfect.

Smaller companies can deliver big time in a lot of sectors, from drugs to IT. You should consider checking out some of the alternative growth stocks that are available on the stock market.

It will be well worth it when you see all those dividends coming in.

Preferred Stocks

Vs. Bonds

Investing fixed income instruments could be a great idea for you when you plan on making your income work as hard as possible.

When you want to protect your money, bonds could be a good idea. You can find a variety of different bonds, and the value of bonds can fluctuate based on a variety of different factors. They are generally a low-risk investment because you’re not taking too much of a gamble on the success of an individual company.

Preferred stocks are another type of fixed income investment. Preferred stocks have a higher rate of return, but they could fluctuate in value.

When you’re in the market to buy fixed income options, it’s important that you compare the rates of return to make sure that the investment is worth it.

Emerging Market Bonds

If All Else Fails, Pay Off Debt

Paying off your debt is the easiest free way to get to a better financial situation. And this helps you practically across the board.

When you have debt, you’re paying interest, and you’re not creating wealth. So when you eliminate your debt you’re not only healthier financially, but also healthier with your time. You can spend that extra time, and energy, on enhancing your business and investing.

It’s easier said than done, but it’s a very simple way to get a better outcome. But you’re going to have to make it happen yourself.

Live a Debt Free Life

If you’re serious about building wealth and living the good life, you need to be serious about eliminating debt. It’s the first, most important step.

But it’s not the only step.

In fact, it’s a good idea to start paying off your debt immediately, but it’s a great idea to start building an investment account as well. Make it a goal to live a debt free life by having both. Once you’ve eliminated your debt, you can invest in some rental properties.