I recently read an article explaining the benefits of long-term compound interest. In the article, a situation similar to the one that I used in my post Compound Interest was used, but in the example in the article, an interest rate of 7% was quoted. As I often do, I read some of the comments at the bottom of the screen and I saw over and over again that people were “complaining” that it was impossible to earn 7% interest today. I am sure that most of these people only know of two places to invest their money, one is under their mattress at home and the other is at an FDIC insured bank. After taxes and inflation, both offer negative rates of return.
I thought to myself, “It isn’t so hard to earn 7%” interest. And so, here are a few places where I’ve invested in the last year and the interest rates that I have experienced:
Symbol / Name / Interest Rate / Description
TWO / Two Harbors Investment Corp. / currently pays 18.10% dividend / This is an Interest Rate REIT (Real Estate Investment Trust) that borrows short term money (low interest rate) and then buys long-term treasury backed securities. As long as Bernacke keeps rates low, this stock will continue to pay fat dividends.
LendingClub.com / The Lending Club / I am currently earning about 16% return on my investment / Allows investors to lend directly to borrowers – most loans are used to consolidate credit cards.
NLY / Annaly Capital Management / currently yields 12.2% / same as TWO.
ETP / Energy Transfer Partners / 7.8% dividend yield / Natural Gas and Oil pipeline company – this company charges big oil to move their product and collects a steady and dependable income.
(no symbol) / Selling uncovered puts and covered calls / I have earned an annualized yield of 19% writing options contracts on stocks, gold, silver and the Australian Dollar / More about this strategy later – but it is one of the safest and highest yielding investments I know of.
EXC / Excelon Corporation / 7.2% dividend yield / United States electricity utility, is a large nuclear power producer.
DPM / Midstream Partners / 6.6% dividend yield / Same as ETP.
TGP / Teekay LNG Parnters / 6.7% dividend yield / Owner-operators of large ships that transport liquified natural gas. With cheap natural gas prices, the demand to move it around the world is booming; TGP has good prospects for future work & stock appreciation. I also write covered calls on this stock boosting my yield into the 10%+ range.
These are just some ideas for you to check out. Remember to always do your own homework; I don’t know your financial situation and you shouldn’t take my recommendation as your only source of income. I do not guarantee any return nor do I take any risk for your investments, it is up to you to do your own due diligence. Having said that, there is always risk and return and the two (sometimes) correspond, sometimes they do not. Most think of an FDIC insured bank as a “safe bet,” but considering a 4% inflation rate, taxes and the .25% interest the bank pays, you’re losing about 4% each year in purchasing power. Doesn’t sound like much? Consider that if you put $100,000 in the bank today, in ten years, that $100k will be worth $60,000. 4% isn’t much this year, but over time it will eat up your investments.
Also consider some of the “safe” Blue Chip Stocks like Walmart, Coca Cola, McDonalds and Microsoft. If you reinvest your dividends into additional shares of stock, most of these stocks have returned upwards of 10% each year in combined dividends and capital gains.
If you want to be a millionaire, you can’t look at life through a set of FDIC insured glasses – you have to look outside the “normal” arena for investments that will provide a return that will propel you to the next level.
Good luck and good investing!
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