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An income fund is an investment fund that is structured to pay out earnings at regular intervals. There is a wide array of income funds, including private funds, real estate funds, mutual funds, and exchange-traded funds (ETFs). So what are the best income funds for beginner investors?
Most people are familiar with funds because of the prevalence of money market funds, but there are many other types of investment funds to choose from. Income funds can focus on a broad range of different asset classes and investment instruments, from government bonds to corporate debt to common stock. For investors who seek consistent returns at regular intervals that avoid long repayment terms, income funds are one of the best options.
The main benefit of income funds is that they produce passive income on a monthly or quarterly basis, rather than paying lump-sum capital gains or appreciation on paper. Comparatively, other types of investment funds sometimes deliver a single large return that’s paid at the close of the fund, often with 5, 7, or even 10-year maturities.
Income funds are great for beginner investors because they enable investors to focus on specific asset classes, making it easier to diversify your portfolio with a variety of funds for a highly specific risk profile and stable, strong returns each month. So what do some of the different types of income funds look like, and which are best for beginner investors?
Money market income funds typically invest in certificates of deposit (CDs), commercial paper, and short-term Treasury bills, which all provide a very low level of risk and virtually guaranteed returns, although relatively modest.
Because the main objective of these funds is safety and security, they generally have low share prices and relatively low yields, making them an easy way for beginning investors to dip their toes into investing.
Bond funds invest in corporate, government, and municipal bonds. Government and municipal bond funds have little to zero default risk, making them an ideal safe haven for investors during economically uncertain times. Because of their low risk, these funds usually pay lower yields compared with corporate bond funds.
Corporate bonds come with the additional risk that the issuer may default on its principal or interest payments. Therefore, these funds often pay higher interest rates. Corporate bond funds are classified as either investment-grade bond funds or below-investment-grade funds, also known as junk bond funds.
A lot of publicly-traded companies pay dividends to their stock investors. Income funds that are primarily invested in stocks that pay dividends are called equity income funds. These funds are mostly popular with retirement-age investors who seek predictable monthly income from their portfolios. Historically, dividends can contribute to a significant percentage of a stock's total long-term return.
One of the best types of income funds for generating stable passive income is real estate income funds. Not only do these funds provide high security, but they also deliver high yields. Let’s cover the various types of real estate funds and what properties they may own.
Real estate funds that hold commercial real estate usually own numerous types of commercial properties in order to balance risk across the portfolio. Here are some common property types you’ll find in these funds.
Multifamily properties are often apartment complexes with multiple buildings and hundreds of units. These properties deliver consistent returns and stability by balancing risk across many different tenants.
Retail property can provide premium, consistent long-term returns for commercial real estate fund portfolios.
The best funds focus on acquiring properties that serve high-growth, stable industries like healthcare, grocery, and specialty stores that offer delivery. These properties deliver secure passive income even despite fluctuating investment markets.
Currently, a top-performing real estate segment is commercial industrial and warehouse space. E-commerce order volume has exploded, driving high performance for these real estate investments and the funds that hold them. Shortages for this type of space are expected to continue into 2022, making them a solid investment.
Office buildings are one of the most secure sources of long-term passive income. As long as assets are thoroughly vetted and in markets with a net positive migration rate, office buildings can provide consistently high-quality returns for income funds.
Some real estate funds focus on residential property investments like single-family rental homes or even entire neighborhoods of single-family homes for rent. These do carry a higher degree of risk because there is only one paying tenant per property, unlike an apartment building with dozens of tenants. These properties require more stringent tenant screening processes to minimize risk.
Real estate income funds that buy unimproved land and develop it into new real estate concepts are called real estate development funds. These are the riskiest types of income funds, along with being the most complex to analyze because of the numerous issues that may arise during the process of construction. One zoning issue could end a project, along with income streams.
Usually, development funds are only open to expert-level accredited investors. These investors often have a strong knowledge of the development process and how to deal with municipality regulations in order to mitigate their investment risk.
For novice investors, selecting the best income fund can be a difficult job due to the multitude of variables to take into account. Your financial objectives are one of the most crucial factors. Do you plan to make long-term or short-term investments? Are you looking for development, income, or wealth preservation? You can start evaluating income funds that fit your financial objectives once you have a clear grasp of them.
Your risk tolerance is a further essential element to take into account. Depending on the kinds of securities they engage in, income funds may carry varying degrees of risk. For example, funds that engage in high-yield bonds may give greater yields, but also come with higher risk. Funds that engage in government assets, on the other hand, might have reduced yields but lower risk. It's crucial to select an income fund as a novice trader that fits your level of risk tolerance.
The success of the fund, fees, and diversification are additional variables to take into account. You can position yourself for a successful investing experience as a novice by carefully weighing these variables and selecting an income fund that is consistent with your financial objectives and risk tolerance. To aid in your decision-making, it's a good idea to speak with a financial adviser or other business specialist.
For accredited investors aiming to diversify their portfolios while minimizing risks and earning predictable passive income, Saint Investment has a real estate fund that delivers the best of both worlds.
Saint Investment Group has a team of real estate experts that analyze every asset that goes into our income funds. Besides leveraging our real estate expertise, our real estate income funds feature detailed reporting and operational transparency, providing you with stable returns and peace of mind.
Call (323) 483-0291 today to learn more!
For novice investors searching for a more reliable financial alternative, income funds can be a good choice. It's crucial to remember, though, that income funds typically have smaller prospective returns than growth-oriented funds.
Your investment objectives, risk tolerance, and general financial circumstances should all be taken into account when selecting an income fund.
Compared to growth-oriented funds, income funds typically have a reduced risk profile, but there is still some risk present. Before participating, it is crucial to thoroughly read the prospectus of the fund in question because the risk level will vary depending on the particular fund and the assets it invests in.
Fees and expenditures, such as management costs and other running costs, are usually incurred by income funds. Before buying, it's essential to read the prospectus for the fund in question and comprehend the fees and costs because they can differ based on the particular fund.
The particular fund and the assets it invests in will determine how frequently dividend or interest payments are made. Some accounts may distribute dividends or interest payouts on a monthly, quarterly, or yearly schedule.
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.
