Investing

3 smart ways to make money from the market each month

Bob Lai and his wife.
Bob Lai

Experts generally recommend that you invest for the long term, so you don't need to be worried about immediate returns. But if you do want to make some regular money from your investments, that's possible, too.

There are stocks that pay dividends, for example, or bonds and funds that dole out interest payments. How often investors receive financial payouts from their investment varies—some companies pay out dividends quarterly, while other investments may do so monthly.

Ultimately, the right option for you will depend on factors including your financial goals and how much risk you're able to stomach.

Here's a breakdown of a few different ways you can make regular money from your investments.

Higher risk: Stocks that pay dividends

Bob Lai, a 36-year-old living in Vancouver, British Columbia, uses a strategy called "dividend investing" that brings in almost $2,000 a month.

Lai, a married father of two who works as a product manager at a Vancouver tech company, has spent the past 10 years building an investment portfolio that earns him passive income from dividends—small cash payments made by many companies to their shareholders several times per year. Lai uses his dividend income to offset the high cost of living in Vancouver, where his family's average expenses add up to $4,800 per month.

"On average, we're making $1,900 per month" in dividend income, Lai says. That adds up: In 2019, he'll earn around $23,000 from dividends. Companies tend to pay shareholders dividends a handful of times per year, so Lai carefully crafted his portfolio to time his dividend payments to allow for a monthly haul.

Lai has leveraged his tech industry salary and financial prowess by taking a buy-and-hold approach with stocks that pay relatively high dividends. He maintains a list, updated monthly, of his current holdings on his website, Tawcan.com. As of June 2019, Lai's portfolio comprises 61 stocks and two index ETFs.

But this strategy has risks. Buying a handful of individual stocks leaves your portfolio vulnerable to the whims of the market. A bad jobs report, for instance, may send the market, and your portfolio's value, crashing. That's why most experts recommend index funds or other diversified securities for the majority of your investments.

Medium-to-low risk: Bonds

Rick Kahler, a certified financial planner at South Dakota-based Kahler Financial Group, says that investors can look to bonds as a safer alternative to stocks if they want regular cash flows from their portfolios.

"There seems to be an interest in buying stocks with dividends so that [investors] can receive cash flow," Kahler says. He doesn't necessarily agree with Lai's method. Instead, Kahler says, most investors are better off buying bonds or simply selling their shares. That's because bonds are less risky than stocks and the income gained by selling shares may be taxed at a lower rate than dividend income.

Bonds are loans, and they earn investors money as they're repaid by the borrower (typically a company or government) with interest. Bonds and bond funds also trade on public markets, so you can purchase them as investments, like stocks. If you own a bond until it matures, you'll have been fully repaid the principal of the loan, plus all the interest payments, earning you a return.

"It's total return that really matters," Kahler says.

Lower risk: Index funds and ETFs

Another way to build up dividend income while tempering risk is to buy index funds, or exchange-traded funds (ETFs), both of which trade like stocks. Index funds let investors allow in certain market segments (such as big companies or energy companies, for example), whereas ETFs are a basket of investments, like stocks, bonds, and commodities, or a combination of them. ETFs typically track an underlying index, such as the S&P 500, and are traded much like regular stocks on stock exchanges.

Investing in these types of funds helps lower risk, as it diversifies your investments. These funds also pay investors dividends, like stocks, making them another option for risk-averse investors. In order to see a monthly payout, as Lai does, you would need to engineer your portfolio to time the dividend distributions. That may take some time and research, but it's a way to make sure you're getting dividends on a schedule.

As for Lai, he's sticking to his method, as it's working for him and allowing him to be hands-off.

"It's on autopilot nowadays," Lai says of his portfolio, which, thanks to the dividend revenue, is helping his family get to where they want to be. "The goal is to hit financial independence," he says. "We're getting there."

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All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

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