Investing in equities via exchange-traded funds (ETFs) is a smart way to diversify your investments and grow your capital over time, but there are ways that do-it-yourself (DIY) investors can get something out regularly without divesting.
Monthly income ETFs are a carefully curated basket of income-generating investments, such as dividend-paying stocks, bonds, real estate investment trusts (REITs), and other securities, all managed by professionals who collect the income from these holdings and distribute it to you on a monthly schedule.
Building Passive Income
These ETFs are designed to put money in your pocket every month, which offers cash flow benefits over holding individual dividend-paying stocks or ETFs that pay distributions, which typically only happens quarterly.
With their smoother payout profile, monthly dividend ETFs provide DIY investors with a more reliable income stream – you can think of them as your second paycheque!
Investors chasing the FIRE dream – financially independent, retired early – can use monthly income ETFs to create supplementary passive income streams. That extra cash in your pocket every month can help pay off debt sooner, fund additional investments, or create a buffer in your budget.
Another important benefit from an additional passive income stream is its ability to hedge against rising consumer prices when inflation is running hot.
Prices can rise quickly in an inflationary environment, which erodes the spending power of every rand you earn. If you’re feeling the squeeze, receiving extra monthly income can help ease the pressure on your budget.
Monthly income ETFs are also great in retirement as they help smooth the transition from a regular paycheque to drawing income from your portfolio.
Instead of making a massive mental shift to quarterly income, retirees can maintain a familiar monthly rhythm.
Make Investing Tangible
Getting regular payouts also makes your investing journey more tangible. Long-term investing requires patience and the promise of a big payout down the line.
Including monthly income ETFs in your self-directed portfolio offers a
psychological boost by providing tangible proof that your investment strategy is working and delivering real returns, while the capital growth keeps rolling over in the background.
Seeing money hit your account 12 times a year also creates positive reinforcement that helps you stick with your plan when markets get rough.
Put Your Money to Work
If you’re reinvesting your distributions, monthly payments give you more opportunities each year to buy more shares and take advantage of any prevailing market opportunities.
Spreading purchases across different market conditions builds cost averaging into your investment structure to help smooth out the impact of market volatility and lower the average cost per share over time.
Diversified Income Streams
A monthly ETF also offers benefits over single dividend-paying stocks as it holds a basket of many different stocks or assets (like real estate or bonds).
If one underlying company cuts its dividend, the impact on your overall monthly payout is reduced because the ETF still receives income from many other holdings. This spreads out the risk compared to owning just a few individual stocks.
Fund selection
When selecting monthly income ETFs, remember that not all options are created equal. Consider factors, like where the income is coming from. ETFs with sustainable yield sources are ideal.
It is also important to check the fund’s distribution history to ensure you’re investing in ETFs that have maintained or grown payments over time. It is often tempting to choose higher-yield options, but consistency matters when your goal is regular and reliable income.
Your options on Clarity
The JPMorgan Equity Premium Income ETF (JEPI-NASQ) seeks to deliver monthly distributable income and equity market exposure with less volatility.
This defensive equity portfolio employs a time-tested, bottom-up fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings.
The JPMorgan Ultra-Short Income ETF (JPST-NASQ) aims to deliver current income while managing risk by investing primarily in a diversified portfolio of short-term, investment-grade fixed- and floating-rate corporate and structured debt while actively managing credit and duration exposure.
