While investing typically focuses on long-term capital appreciation, some investors—especially retirees or those nearing retirement—must also generate a steady cash flow and create a reliable monthly income stream to cover living expenses/healthcare costs and maintain financial independence.

Designing a portfolio to provide regular income involves choosing from a wide range of income-generating assets that meet different financial goals and risk tolerances. Whether you’re seeking to supplement your income or create a primary source of financial support, understanding the advantages and disadvantages of various assets—which we'll go on to discuss—is key.

Income annuities

Issued by insurance companies, annuities—one of the most popular assets for those looking to generate consistent income—work by converting a lump-sum payment or series of payments into a guaranteed income stream for a specified period of time (or the duration of the annuitant's life).

There are two main types of income annuities: immediate annuities and deferred income annuities. As their names imply, payouts begin within twelve months of the initial investment with immediate annuities whereas deferred income annuities delay payments until a future date: allowing funds to grow tax-deferred before distributions begin.

One of the most significant benefits of income annuities is the corresponding financial security, with this predictable income stream especially valuable for retirees concerned about market volatility and looking to safeguard their financial well-being.

Annuities also offer tax advantages as annuity earnings grow tax-deferred until withdrawals begin—potentially enhancing overall investment growth—and remove the burden of managing complex investment portfolios, giving peace of mind to those who prefer simplicity in their retirement strategy.

Nevertheless, income annuities also feature some drawbacks such as a lack of liquidity; once funds are committed to an annuity, accessing that money is often difficult or costly due to surrender charges and penalties for early withdrawals. Additionally, many annuities come with high fees and expenses (e.g., administrative costs and commissions) that can erode returns over time. Inflation is another concern; unless the annuity includes an inflation-protection feature, the purchasing power of fixed payments may diminish over time—potentially impacting one’s standard of living. Income reliability is furthermore tied to the financial stability of the issuing insurance company, introducing some degree of credit risk.

Bonds

Another asset that can provide monthly income is a bond, essentially a loan an investor makes to a government, corporation, or other organization in exchange for an agreement wherein the bond issuer pays the investor regular interest payments (known as "coupon payments") over a specified period of time. Once the bond reaches its maturity date, the issuer repays the original investment (the principal) to the investor.

Bonds are generally categorized per their issuers, such as government bonds (e.g., U.S. Treasury bonds or savings bonds), municipal bonds, and corporate bonds: each offering varying levels of risk and return.

One primary benefit of investing in bonds is the steady and predictable income they provide. They aren't without potential challenges, however, given some risks including:

Interest rate risk: When interest rates rise, the market value of existing bonds typically falls as newer bonds offer higher yields—making older bonds less attractive. Conversely, bond prices generally rise when interest rates fall.

Inflation risk: Fixed interest payments may lose purchasing power over time if inflation outpaces the bond's yield.
Credit risk: The issuing company can default on its debt obligations, especially a concern when it comes to corporate bonds.

Bond ladders

When investing in bonds to ultimately generate income, a "bond ladder" is a useful strategy: purchasing a series of bonds with staggered maturity dates so investors receive regular income as they mature at different intervals (typically ranging from months to years). Take the example of an investor who buys bonds maturing in one, two, three, four, and five years; as each one matures, the principal is either reinvested into a new long-term bond to extend the ladder or used to meet income needs. This strategy creates a continuous cycle of bond maturities, offering consistent cash flow and the ability to mitigate interest rate risk.

You can also customize a bond ladder strategy to align with monthly income needs and evolving market conditions, a valuable option for maintaining financial stability while managing interest rate and reinvestment risks.

Dividend-paying stocks

Dividend-paying stocks are shares of publicly traded companies that regularly distribute a portion of profits to shareholders in the form of dividends, payments typically made quarterly to provide investors with a steady income stream (in addition to any potential capital appreciation from the stock’s rising value). Companies that pay dividends are often well-established, financially stable businesses with consistent earnings (e.g., those in the utilities, consumer goods, or healthcare sector), with dividend-paying stocks giving investors seeking regular cash flow a chance to participate in the growth potential of the stock market.

It's worth keeping in mind, however, that unlike bonds, dividend payments aren't guaranteed—and even liable to reductions or suspensions. Focusing too heavily on dividend-paying stocks can also limit portfolio diversification as these companies are often concentrated in specific sectors (e.g., utilities or consumer staples).

Savings accounts and CDs

Savings accounts and certificates of deposit (CDs) are two of the most straightforward and secure options for individuals seeking to grow their money with minimal risk. Offered by banks and credit unions, both of these choices offer a safe place to store cash while earning interest over time.

While savings accounts allow for easy access to funds—ideal for emergency savings or short-term financial goals—CDs require locking in a fixed amount of money for a specified period of time (ranging from a few months to several years) in exchange for a higher interest rate than most savings accounts.

While their safety, simplicity, and accessibility make savings accounts and CDs valuable tools for short-term savings and capital preservation, relatively low returns can fail to keep pace with inflation—potentially eroding purchasing power. Investors may thus need to balance these products with higher-growth investments when pursuing long-term financial goals.

Real estate

Real estate is a popular option among those seeking both consistent monthly income and long-term wealth accumulation. By purchasing residential or commercial properties and renting them out to tenants, investors can generate steady cash flow via rental payments and ideally build equity with the real estate appreciating in value over time.

Despite its benefits, however, rental real estate also comes with challenges and risks. Managing rental properties requires significant time and effort (to find/screen tenants, tackle repairs and maintenance, etc.), property vacancies can disrupt cash flow, and problematic tenants can lead to legal disputes or costly damages. Real estate investments are also illiquid, meaning it can take time to sell a property and thus access any necessary funds. Additionally, property values and rental demand fluctuate per market conditions, economic downturns, or changes in local regulations: impacting both income and property appreciation. Investors must also prepare for ongoing costs such as property taxes, insurance, and unexpected maintenance expenses—all of which can eat into profits if not carefully managed.

Real estate investment trusts (REITs)

For income-focused investors, REITs provide an accessible and relatively liquid way to participate in the real estate market with less risk than individual rental properties. By purchasing shares of a REIT—a company that owns, operates, or finances income-producing real estate across various sectors (e.g., residential, commercial, industrial, healthcare, or retail)—investors gain exposure to a diversified portfolio of properties and receive a portion of income generated, typically via regular dividend payments. Not only does this give investors a way to earn consistent real estate income without the responsibility of directly owning or managing property, but REITs offer diversification across diverse types of properties and geographic locations: reducing the risk associated with relying on a single property or market. Typically traded on major stock exchanges, REITs are also highly liquid—allowing investors to buy and sell shares more easily than with illiquid physical real estate—and provide access to commercial and large-scale real estate investments difficult or cost-prohibitive to own individually (e.g., office buildings, shopping centers, or industrial facilities).

One downside of REITs to keep in mind is their sensitivity to interest rate changes; as interest rates rise, REITs may become less attractive than bonds or other fixed-income investments and thus potentially trigger price declines. Additionally, while REITs offer income via dividends, volatility can strike share prices especially during economic downturns or real estate market slumps.

The takeaway: investing for monthly income

Aiming to bring in money on a monthly basis, this specific investment strategy requires a different approach than investing with the goal of long-term capital appreciation.

Want to craft an investment strategy balancing your unique needs? Schedule a FREE discovery call with one of our financial advisors so we can help.

Investing for Monthly Income