Start the conversation
In today's low-interest-rate environment, it's harder than ever to earn money on your nest egg. We need to look in unconventional places to jump-start our income and increase returns.
Fortunately, "alternative investments" offer substantial income streams with a solid margin of safety.
Here are five that combine strong yields, low risk, and high appreciation upside.
Retirement Must-Have No. 1
The Angel Oak Financial Strategies Income Term Trust (NYSE: FINS) is one of the safest high-yield opportunities on this list.
It invests in a corner of the market that individual investors can't access on their own: community bank debt. This niche market is dominated by a handful of institutions.
Angel Oak has been a leader in the market since 2014. It manages more than $1.5 billion of community bank debt across several of their alternative income funds.
Community banks in the U.S. are in great shape right now. Loan losses are minimal, and capital levels are near all-time highs.
So it's next to impossible for community banks to default on their debt. These bonds are among the very safest you could buy right now.
Debt issued by small banks tends to be uncorrelated with both the stock and bond markets. They aren't widely held by any exchange-traded funds or big mutual funds, so you're not exposed to short-term traders at all.
They seldom trade, if ever, and you get junk bond returns for investment-grade credit conditions and low volatility.
Angel Oak's current yield is 6.88%. Dividends are paid monthly, so your account benefits from a steady flow of income.
Retirement Must-Have No. 2
Real estate is the top-performing asset of the last 20 years. And right now, there's no better place to be than the commercial space.
Commercial real estate prices might not go up as quickly in 2020 as they have in the last few years, but it's highly unlikely they'll go down.
The economy is still chugging along. Office demand is high, and rents have been rising.
Industrial property has been on fire, with the demand created by e-commerce rising almost daily.
Multifamily demand has also been strong, as a limited supply of individual houses for sale has driven prices up in many areas.
These are perfect conditions for commercial real estate lenders.
Enter Ares Commercial Real Estate Corporation (NYSE: ACRE), which originates and invests in commercial real estate loans in the United States.
Ares Commercial Real Estate is very picky about the loans it makes. It only closes on about 5% of the deals it investigates.
It limits its lending activity to the top 30 metropolitan areas, so its collateral operates in robust economies. Most of the loans it makes are senior loans, so they're the first to be paid off if something goes wrong.
ACRE's strategy is working. It's originated approximately $5.2 billion of real estate debt with no losses.
Right now, its portfolio has 47 loans that are secured by $1.5 billion of commercial real estate.
Since the beginning of 2018, ACRE has increased its quarterly dividend four times, and the stock currently yields over 8%.
Management or affiliates of Ares own 9% of outstanding shares. Everyone involved has a vested interest in keeping the dividends flowing.
No matter what happens in the economy and the market, as long as rents are being paid and the borrowers make their payments, the cash will keep showing up in your account.
Retirement Must-Have No. 3
Industrial Logistics Properties Trust (NASDAQ: ILPT) owns and leases - you guessed it - industrial and logistics properties throughout the United States.
It currently owns 300 properties with 42.8 million rentable square feet. Approximately 99.5% is leased to 270 different tenants with an average remaining lease term of 9.6 years.
About 40% of annualized rental revenue comes from 226 properties with 16.8 million square feet on the island of Oahu, Hawaii. Most are long-term ground leases to tenants who have constructed buildings and operate businesses on ILPT's lands.
These "industrial properties" aren't factories belching smoke into the air. Most industrial real estate is leased to warehouse and shipping facilities benefiting from the e-commerce boom. In fact, Amazon.com Inc. (NASDAQ: AMZN) is Industrial Logistics' largest tenant.
Since its 2018 IPO, it's acquired more than $1 billion worth of properties. Last year, it purchased an eight-property portfolio in the Indianapolis and Cincinnati markets, 20 property portfolios in 12 states, and two multitenant properties in Columbus, Ohio.
ILPT currently yields over 6%, and the dividend should increase in time as its portfolio of warehouse and shipping-related properties continues to grow.
Retirement Must-Have No. 4
Up next is a closed-end fund. This often overlooked part of the market can provide huge total returns.
With open-end mutual funds, the number of shares is unlimited and may grow or contract based on a fund's popularity at any given time.
Shares are bought and sold at net asset value, plus or minus commissions.
Closed-end funds, on the other hand, are formed with a fixed number of shares. Once the original offering closes, they're sold and traded on the stock exchange.
These funds may trade for more or less than the actual value of the securities owned by the fund.
RiverNorth Opportunities Fund Inc. (NYSE: RIV), a Chicago-based money management firm, has been active in the closed-end fund marketplace since it was founded in 2000.
It invests in other closed-end funds, buying them across a wide range of asset classes when they trade at a substantial discount to their underlying net asset value.
RiverNorth prefers opportunistic strategies in niche markets where the potential to exploit inefficiencies is greatest.
Most closed-end funds pay relatively high dividends. Because of its focus on this market, RiverNorth can capture large income streams and pass them along to shareholders.
Right now, shares yield over 12%, and dividends are paid monthly, so there's always cash flowing into your account.
This is a unique opportunity to own a portfolio of assets trading for a significant discount and paying huge dividends.
Retirement Must-Have No. 5
Our last pick is a closed-end fund trading at a substantial discount to its net asset value.
Aberdeen Asia-Pacific Fund Inc. (NYSE: FAX) shares currently trade for roughly 11% less than the value of its assets.
The fund invests in global bonds, with most of its securities in Asia.
The majority of the fund's bonds are government bonds, and at least 20% must be in Australian government bonds.
Seventy percent of these bonds have an investment-grade rating from one of the major rating agencies. About 60% mature in the next several years.
FAX's yield is currently 7.7%, so it's an excellent addition to an income portfolio in a low- and negative-yield world.
This fund can often see its price pushed around by headlines about China, tariffs, and currency movements.
Fortunately, there's a simple way to play this.
Buy a little now to add this yield to your portfolio. When headlines push the price down, buy a little more.
If it rallies to the point where the discount is eliminated, sell most of the stake and wait until the discount widens again when news turns against the fund.
With the five alternative investments in this report, you can build income that will help you retire in comfort... without the laundry list of brokerage fees or the dramatic increase in risk.