3 Ideas For Getting Higher Investment Yields
With financial markets the way they are hoping for capital gains is like a hail mary at the end of the game. In times like these getting solid dividends is the most sound way to move your portfolio forward. If you’re nervous about investing in the stock market, but don’t want to have your money sitting in cash, here are three places to get started. The following are three ideas for getting a yield above a standard money market fund, all with various amounts of risk.
First up is the Vanguard Short-Term Bond ETF (BSV). It is currently yielding 2.7%, lower than most CDs but also more liquid. On the other hand a savings account at ING Direct is paying 2.75%, is fully liquid, and has no minimum investment. While the fund does pose some risk, it also has the potential for capital gains as well. I began investing in this through my brokerage account since we didn’t have enough money to invest in a high-yield money market fund, which typically have minimum requirements of $50k or higher.
The second idea is the iShares Investment Grade Corporate Bond ETF (LQD). The yield is quite a bit higher at 6.16%, but there is also more risk, coming as both credit risk and investment risk. Credit risk is the risk that the some bonds don’t pay, causing a drop in the yield. Investment risk comes from the volatility of the fund. As you can see the fund is down about 11% this year, which would have wiped out the yield altogether. The key to this fund is the investment grade rating. In a turbulent market such as the one we’re in it’s extremely risky to buy non-investment grade bonds, aka junk bonds or high-yield.
Last up is the iShares S&P Preferred Stock Index (PFF). This is the riskiest of the three ideas here, but it is also yielding a hefty 11.52%. Take a look at the top holdings and you will see why this is down. Owning this fund is going to give you a lot of exposure to the financial sector, so if you’re scared of them this probably isn’t the place to be. But if the market turns around this fund will give you some exposure on the upside, while giving you a decent yield while you’re waiting. For those who don’t know preferred stock from livestock (sorry I had to throw that in there), I recommend reading up on preferred stock at wikipedia before investing.
As always I encourage you to do your own research as your risk tolerance may be different than my own.
disclaimer: at the time of this writing I own shares in BSV and LQD
