Everyone is looking for ways to make some extra money. Whether it’s a side job or running a business or investing, financial freedom is the goal. If you’re looking to make an additional income through investing, there are always risks involved. What matters most is how you manage your risk to get the best out of your investment.
Purchasing bonds would definitely be a worthwhile investment especially as it carries little risk and can give high returns. There are about three types of bond investments, each a different approach but with the same concept.
Investing in a government bond is simply like loaning money to the government, and being paid interest on the value of the loan provided. These bonds can be short-term, long-term, or medium depending on the length of time you believe is possible for you to let your capital be locked in.
The maturity date is the time capital is returned to the investor alongside the profit gained. Maturity for short-term bonds is typically between a year and three years. Medium-term bonds could take up to ten years for maturation and long-term bonds are significantly longer. There are also bonds that are loaned to investors by the state and local governments, and then there are corporate bonds.
Corporate bonds, just like government bonds, are some form of debt issued to investors that accrue interest. In this type of investment instead of money being loaned to the government, it is loaned to a company or corporation.
Corporate bonds are great for the short term, especially if you’re investing in corporations that have been doing well, because of their higher return values. Returns on bonds generally are not fixed.
They can vary depending on who is offering it and of course, also depend on the value of your capital. Despite the fact that the capital is locked in the bonds, it is still subject to fluctuations in interest rates. This constitutes the major part of the risks and it is also the reason short-term corporate bonds are preferred.
The shorter the investment time frame the less the interest rates will fluctuate and affect the returns. Corporate bonds like this can still be traded which means that there’s some volatility.
Another low-risk investment is purchasing stocks from reputable companies that pay dividends. A constant stream of cash from dividends is great for investors looking for steady cash flow. One of such dividend-paying investments is Real Estate Investment Trust (REIT). This is actually one of the best.
By law, this group is mandated to pay about 90% of its income tax as returns to investors, and the yield of this investment has one of the highest percentages. According to Forbes, REIT dividends have paid 3.93% on average, and utility dividends have averaged 3.11%.
The REIT operates like mutual funds and invests your money for you in housing, offices, and other buildings like hotels and restaurants. So in addition to earning steady cash through dividends, you also get to be a real estate owner.