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Many investing professionals will tell you that a good strategy — especially for the beginning investor — is choosing index funds. This is because index funds offer consistent returns, and they are relatively safe (although, of course, all investment carries the risk of loss).

What are index funds?

Index funds are instruments that include stocks from an entire index. You can buy funds for the S&P 500 index, Nasdaq and Dow Jones All-Shares. There are index funds that allow you to invest in foreign companies, small businesses and other sectors. The idea is that you can gain when overall market performance heads higher. And, with the stock market in turmoil right now, it is possible to get shares in index funds for reasonably low prices, helping to boost your earnings later.

Things to watch carefully when choosing index funds

It’s not about just choosing a managed index fund and going with it, though. You need to choose carefully, or fees and other costs will eat into your earnings. The Motley Fool offers some insight into choosing index funds:

The various funds also differ in their minimum investment amounts, and those with higher minimums tend to have lower fees. Schwab offers one such fund with an expense ratio of 0.52% and a minimum of $100, and another fund with an expense ratio of 0.37%, along with a minimum of $50,000. Fidelity Spartan’s expense ratio is a mere 0.09%, but its minimum is $100,000. Look beyond the single expense-ratio number, too, as some funds charge sales loads and account maintenance fees, escalating the costs further.

You want to make sure that you truly are getting the best deal on your index funds, and you want to make sure that you are making solid decisions that are likely to benefit you in the long run.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: stock market, index funds, investing blog, choosing index funds,
investing strategy, investments, foreign funds

One of the issues that comes up in terms of retirement planning is how much money you need in investments to live comfortable off the interest — or at least live comfortably while the principal remains mostly intact throughout the rest of your life. Often, multiple “passive” income streams are needed in order to achieve this goal. At the very least, a balanced portfolio can help you get a good mix of less risky and risky investments to maximize your earnings while preserving more of your principal.

My Money Blog offers an interesting look at some different investing strategies for your investment portfolio that can help you earn passive income for retirement:

Bonds and CDs

These are considered the least risky of investments. Consequently, they also have the lowest returns. Government bonds (both federal Treasury bonds and municipal bonds) can offer reasonable yields, however, and CD laddering can be one way to get regular income from cash investments.

60/40 allocation

This is an investment strategy that combines riskier stocks (60% of your investment portfolio) with less risky bonds (the other 40%). According to theory, this will allow you the ability to withdraw 4% of your investment portfolio every year. This will only marginally reduce your principal, as the returns should be high enough most years to cover most of the withdrawal. However, there is a warning:

However, your portfolio will experience wilder swings, and this rigid method is very sensitive to the returns in the first years of retirement. If you have a bad decade upfront, your chance of going broke rises quickly.

Mutual funds

There are mutual funds out there designed to help you attain regular income. They include some stocks, but focus a great deal on bonds as well. The idea is to create an income stream.

In a related category, there are managed payout mutual funds that adjust their allocation depending on how you are spending your money.

Stock dividends

Dividend paying stocks can also be helpful. These are stocks that regularly pay out per share. In some cases, yields are high enough that you can live off the dividends. However, in times like these dividends decrease, so becoming dependent on them can be risky in and of itself.

Income annuity

This is a very interesting income stream. However, it is likely that you will lose your principal. But if you are more interested in a regular monthly income, this might work out for you. Here is what My Money Blog says about the income annuity:

With a simple version of an immediate annuity, you hand over a lump-sum upfront in return for fixed income payments for life. Of course, if you die early then you don’t get your lump sum back. However, you could live until 110. It’s almost like life insurance in reverse. A special risk here is that your insurance company must stay solvent the entire time, so you must check credit ratings.

Whatever you choose — or if you go with a combination — it is important to make sure that you are doing the right thing for you and your situation. And remember to start saving and investing for retirement right now: You can’t live off your investment portfolio in retirement if you don’t have one.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: stock investing, mutual funds, investing blog, retirement planning,
passive income, investments, income annuity

For the most part, your investments are likely to offer you dividends every quarter or so. This can be frustrating if you are looking to create a monthly income stream. Happily, though, there are funds that pay you monthly, offering an income stream from your savings. Kiplinger offers a look at this investing idea:

Exchange-traded bond funds pay monthly. Most of Vanguard’s bond funds, whether in the format of regular funds or ETFs, make monthly distributions. So do many funds that invest in Ginnie Mae mortgage securities.

Some well-known mutual funds have increased the frequency of their distributions. In mid-2007, Loomis Sayles Global Bond FundLSGLX), which had made distributions annually, switched to a monthly payout schedule. And Loomis Sayles Bond FundLSBRX) switch from quarterly to monthly payouts. … ( (

One exception is Realty Income Corp. (O), which makes distributions every month (in fact, it has trademarked the slogan The Monthly Dividend Company). …

Oil and gas royalty trusts and master limited partnerships generally also pay every month.

You can see where such items would be helpful. For retirees, this type of monthly income stream is especially helpful. It provides more regular payments so that you can better coordinate them with your expenses. And oil and gas royalty trusts, especially, can be a great way to ensure a regular income.

But this investing idea isn’t just for retirees. If you have enough capital to invest it in a bond fund that pays monthly dividends, you can also create an income stream based your investment right now. This can ease things for you in other areas of your household budget.

As always, though, it is important to make sure that you are choosing funds that fit with your risk tolerance profile, and that have a reasonable expectation of regular returns. Diversification is also a good idea.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: income stream, investing idea, investing blog, monthly dividends,
funds, investments, retirement planning