The last time you could get a 7% yield from a CD was in the 1980s. Today, you'd be lucky to find a CD that pays more than 1.5%.
Stocks yield a bit more -- the typical dividend payer in the S&P 500 pays a 2% dividend yield. But then there's market risk involved. For people who rely on a steady income stream, it's a lot to have to submit to the whims of the market for a paltry 2%.
To be sure, low-risk yields of 5%, 6% or 7% are scarce. But there's one overlooked corner of the income universe that sports them in abundance.
It's like a CD -- it preserves your capital and still offers a highly predictable income stream. But it can yield up to 600% more.
I call this investment a 'CD Killer,' but it's actually known by its more formal name: exchange-traded debt (ETD).
An ETD is a special bond issued by a company to raise capital, except it's geared toward retail investors like you and me.
Unlike traditional bonds, which are issued in units of $1,000 a piece and trade over-the-counter, ETD is typically issued as 'senior notes' in units of $25 and trades daily on the New York Stock Exchange or Nasdaq.
As with bonds or CDs, you get your principal back at maturity. So, if the face value of a note is $25, you will get that back when the ETD matures. Meanwhile, you collect interest payments quarterly, not just semi-annually as with traditional bonds.
And unlike long-term bonds, which could be risky if interest rates start to rise, you don't have hold it forever to get a superior yield.
Yields are not only as much as triple what you can get from an average S&P 500 stock -- they're also more secure.
You see, no payments can be made to common or preferred stockholders or junior debtholders until the company pays its ETD holders first. In fact, companies are legally obligated to pay interest and principal payments first, so ETD holders are at the top of the food chain even in the event of bankruptcy.
Of course, there are a few hitches, so you need to be selective when you buy an ETD.
As with traditional bonds, the notes can be 'called' (or redeemed) before maturity. If you buy a note at $25.82 and it's redeemed at the face value of $25 on the call date (the first call date is say, September 30, 2015), you will lose some of your principal investment. So you want to check that either the note is trading close to face value when you buy it or the call date is far enough out for quarterly interest payments to make up the difference.
The Investing Answer: By doing your research and finding 'CD Killer' investments that offer a far better income/risk proposition than what you would get with a traditional CD, bond or stock, you can beat the odds and be well on your way to collecting a comfortable retirement income.
