Where to Invest Money to Get Good Returns: Top Options for 2025

Australian super funds are investing in private assets like real estate and infrastructure for steady long term returns and Aware Super is leading the charge.

Investors can get regular income, diversification and capital growth from Real Estate Investment Trusts (REITs), dividend paying stocks and bonds for income focused investors.

Higher yielding options like high yield ETFs, private debt funds, infrastructure investments and mortgage funds offer income and diversification with varying degrees of risk.

Income Focused Super Funds

Australian super funds are investing in private assets for steady returns for their members.

This is evident in their increasing allocations to sectors like real estate, infrastructure and private equity.

Aware Super’s Investment Strategies

Real Estate Expansion

Aware Super has launched Aware Real Estate. Will manage $7 billion in assets in 5 years.

This is a big step into the Australian property market. Aware Super doesn’t invest in properties the traditional way, they will own properties directly for more control and better returns.

The focus will be on key property sectors, living spaces, industrial hubs, commercial offices and mixed use developments.

This is in line with the growing demand for high quality, well located real estate in Australia’s major cities.

By using its size and expertise Aware Super can secure good deals in a competitive market.

International

Global is part of the strategy. Working with Delancey Real Estate the fund will invest up to £1 billion in UK real estate.

The partnership will focus on high growth opportunities particularly in logistics and mixed use properties which are experiencing strong demand due to e-commerce and urbanisation trends.

By going global Aware Super can diversify away from domestic risks and tap into the strong performance of the UK property market.

International investments not only diversify the portfolio but also allows Aware Super to benefit from global economic changes.

Local

In Australia Aware Real Estate is leading a build-to-rent project in Melbourne with A$320 million of capital.

This will support the city’s housing supply as demand for affordable rental properties soars.

Build-to-rent is a growing sector in Australia, providing stable long term cash flows for investors and addressing the housing affordability crisis.

By being involved in this sector Aware Super is delivering returns for members and community development.

Industry Trends

Private Asset Allocation

Across the super landscape the trend is clear. AustralianSuper, the country’s largest super fund will increase private equity by 90% over the next 4 years.

This is a big shift of opinion that private markets will deliver higher returns than public markets.

By investing in private equity super funds can get into high growth companies before they go public and often get bigger returns for their members.

Private Markets

Industry experts say it’s a broader private market focus as per Morningstar’s 2025 outlook.

Super funds are using their size and long term investment horizon to get into private deals that would be unavailable to smaller investors.

This gives funds more pricing power, exclusive access to deals and better terms.

By investing in infrastructure, private credit and unlisted equities super funds can reduce portfolio risk during market volatility.

More scrutiny

More private assets means more scrutiny. Super funds are increasing their oversight of private investments due to regulatory demands for transparency and valuation.

The Australian Prudential Regulation Authority (APRA) is increasing its focus on disclosure standards and funds are being forced to provide clear and timely information on the value and performance of their private assets.

This is to protect members and accountability.

Better valuation methods, third party audits and stricter compliance protocols are now industry standards and gives members more confidence in the super portfolios.

This is a big shift by Australian superannuation funds to diversify and get better returns.

By investing in private assets locally and globally funds are opening up a new investment frontier.

This is good for long term member returns and good for Australia’s position in the global investment landscape.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) allow individuals to invest in large scale income producing real estate without having to own the properties, a way to get into real estate markets.

REITs invest in commercial and residential properties and generate income through rents from tenants and property value appreciation over time.

Types of REITs and What They Focus On

Equity REITs

Equity REITs own and manage real estate properties such as office buildings, shopping malls and residential complexes and provide direct exposure to physical real estate.

They generate income through rental payments from tenants and may also get capital gains if property values go up over time.

They are good for investors who want regular income from rents and a way to invest in property ownership without having to own the properties. Equity REITs are a good option for those who want to get into real estate.

Mortgage REITs

Mortgage REITs (mREITs) invest in real estate debt such as mortgages or mortgage backed securities rather than physical properties and provide a different exposure to the real estate market.

They generate income through interest payments from loans to property owners and developers and are more focused on financing real estate transactions.

mREITs have different risk and return dynamics to equity REITs and performance is influenced by interest rates and real estate debt markets.

Hybrid REITs

Hybrid REITs combine equity and mortgage REIT strategies and invest in both physical properties and real estate debt and offer a diversified approach to real estate investing.

These REITs get income from both rental income from properties and interest from loans, combining the benefits of property ownership with the returns from real estate debt.

By getting both property related income and the stability of debt investments in the sector, Hybrid REITs allow investors to get exposure to a wider range of real estate assets.

Investment Benefits and REIT Trends

Steady Income

REITs provide a steady income stream as they are required by law to distribute at least 90% of taxable income as dividends, good for income investors.

REITs pay dividends quarterly or monthly depending on the fund’s distribution frequency, so investors get a regular income.

The mandatory income distribution requirement makes REITs a good option for those who want stable and predictable dividend yields from income producing properties.

Diversification and Risk Reduction

By investing in multiple properties across different sectors REITs offer a lot of diversification and reduce individual risk.

This diversification means poor performance in one area doesn’t impact the overall returns.

REITs are a good option for investors who want to get into the real estate sector without putting all their eggs in one property.

Global Expansion and Sustainable Investments

Many REITs are going global, providing access to global real estate markets. Investing in international REITs allows investors to diversify geographically, spread risks and get growth from emerging markets.

And sustainability is a big trend, REITs are now focusing on green buildings and energy efficient developments to meet the growing demand from investors for eco friendly investments.

REITs are a good option for investors who want to get into the real estate market without the hassle of direct property ownership. With steady income, diversification and global opportunities REITs are getting more popular.

Dividend Stocks: A Safe Investment

Dividend stocks are shares in companies that distribute a portion of their profits to shareholders. These investments provide a steady income and potential for capital appreciation.

Companies that pay dividends are established companies, so investors get reliable returns. Dividend stocks are good for income and long term growth, so good for conservative investors.

Dividend Stocks Benefits

Steady Income

Dividend stocks provide a steady, predictable income, most companies pay quarterly so good for investors who need regular cash flow, like retirees.

Even during market downturns dividend paying companies usually maintain their payouts, so there’s a buffer against volatility, so good for income focused investors.

Dividend income can be reinvested for compound growth, to grow wealth over time or used for expenses, so flexible and adds to financial security.

Capital Growth

Dividend stocks offer two benefits: regular income through dividends and potential capital growth, good for long term wealth building.

Many established companies with good growth prospects increase their dividends over time which can lead to stock price appreciation and overall returns.

The combination of steady income and potential capital growth makes dividend stocks a good choice for long term investors who want to build wealth consistently.

Tax Efficiency

Dividend stocks are tax efficient, dividends are taxed at a lower rate than ordinary income, so investors get to keep more of their returns, especially those in higher tax brackets.

Holding dividend stocks in tax advantaged accounts like superannuation funds or IRAs helps to defer taxes, so you can get long term growth and overall more attractive investments.

Tax efficiency of dividend stocks makes them good for income generating investments, especially for those who want to minimize tax and grow their portfolio.

Dividend Stocks Types

Blue-Chip Stocks

Blue chip stocks are large established companies with a good reputation so good for investors who want consistent dividend payments.

These are less volatile so good for investors who want reliable income with lower risk.

Blue chip companies with a long history of paying dividends provide income focused investors a steady source of returns while keeping their portfolio stable.

Growth Stocks with Dividends

Growth stocks that pay dividends offer capital appreciation and regular income, good for investors who want growth and steady returns.

These allow investors to get income generation and higher growth, good for those who want aggressive returns with some stability.

By investing in growth stocks with dividends investors can get both capital growth and dividend payouts, a balance between income and long term appreciation.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) invest in income generating properties and distribute at least 90% of taxable income as dividends, so regular income and real estate exposure.

REITs are good for income focused investors, they can diversify their portfolio by investing in real estate and get stable dividend payouts from rental income.

With their dividend requirements REITs provide a steady income stream so good for investors who want consistent returns and real estate exposure without owning property.

Government and Corporate Bonds: A Safe Investment

Steady income and lower risk than stocks makes them good for conservative investors who want predictable returns. Bonds offer fixed interest payments over a set period, so good investment.

By investing in government or corporate bonds you are lending money to governments or companies and get regular interest payments until maturity then the principal amount is returned.

Government Bonds

Low Risk and Reliable

Government bonds issued by national governments are low risk investments, especially from countries with strong credit ratings like US or Australia so higher security for bondholders.

These bonds offer lower returns than corporate bonds but stable income and generally lower tax, depending on the country’s tax laws.

Good for conservative investors, government bonds prioritizes security and stability so good for those who want low risk income with guaranteed returns.

Interest Payments and Maturity

Government bonds pay interest at regular intervals, semi-annually and return the principal at maturity, so predictable income for investors.

The coupon rate or interest rate is fixed at issuance so investors know the exact amount they will get over the life of the bond.

With fixed interest rates and guaranteed principal return government bonds is a stable and reliable investment good for conservative investors who want low risk income.

Corporate Bonds

Higher Yield

Corporate bonds are issued by companies to raise capital for expansion, acquisitions or refinancing, typically with higher interest rates than government bonds because of higher risk.

Companies with higher credit ratings offer better bond terms with lower risk, while lower rated companies offer higher yields to attract investors, to compensate for higher risk.

Investing in corporate bonds offers higher returns than government bonds but comes with company default risk which can result to payment failure.

Diversification and Credit Risk

Corporate bonds provides portfolio diversification by giving exposure to different industries like technology, healthcare and finance, reducing risk through sector diversification.

Investing in bonds from different sectors allows investors to spread their risk, not to rely on a single company or industry.

This diversification can help offset potential losses in one sector as the performance of other sectors can offset any downturn in the bond market.

High Yield Exchange-Traded Funds (ETFs)

High yield ETFs gives exposure to a range of income generating assets, high dividend stocks, bonds and real estate so strong returns and diversification for investors.

By investing in these funds you get both capital appreciation and regular income so good for investors who want stable and growing returns.

High Yield ETFs

Dividend Focused ETFs

Dividend focused ETFs invest in high dividend paying stocks so regular income and good for investors who want reliable cash flow without having to manage individual stocks.

These funds target companies with dividend history, especially in sectors like utilities, energy and real estate so stable payouts over time.

These ETFs is good for long term income generation and portfolio growth as you can reinvest dividends and compound your returns. Dividend focused ETFs is a strategic way to build wealth over time.

Bond ETFs

Bond ETFs invest in government, corporate or municipal bonds, higher yields than traditional savings accounts so good for conservative income seeking investors.

These funds gives exposure to different bond markets, Bond ETFs reduces individual bond selection risk and you’re not too dependent on the performance of a single bond or issuer.

Bond ETFs is a easy way to add fixed income to your portfolio, diversified and stable income without the hassle of buying bonds directly.

REIT ETFs

REIT ETFs gives exposure to property portfolios that generates income through rent and capital appreciation so investors can get real estate benefits without having to own properties.

These funds is good for income focused investors with higher yields generated by rental income so good for those who want consistent returns from real estate investments.

REIT ETFs diversify by investing in different real estate sectors, residential, commercial and industrial properties, spreading the risk and potential growth from different property markets.

Benefits and Risks of High Yield ETFs

Diversification and Low Cost

High yield ETFs allows portfolio diversification across different sectors and asset classes, reduces risk by not relying on a single investment so good for risk averse investors.

These ETFs is cost effective compared to actively managed funds, lower expense ratio and good for long term investors who want high yields without high management fees.

The diversification in high yield ETFs reduces risk by spreading the investment across multiple industries, and their affordability makes it accessible to investors who want consistent income with lower cost.

Yield Volatility

High yield ETFs gives higher returns but comes with higher volatility, especially in bond and REIT sectors due to market fluctuations and sector specific risks that can lead to unpredictable performance.

Interest rate changes can hurt bond ETFs, real estate cycles can hurt REIT ETFs so there’s risk to the investors. Know these risks before investing in high yield ETFs.

Investors should know their risk tolerance and be aware of the risks of high yield ETFs, especially the market fluctuations and sector performance.

Long Term Income Potential

High yield ETFs gives steady income and good for retirees or income focused investors who want regular payouts while growing their portfolio over time through dividend reinvestment.

These ETFs allows investors to compound by reinvesting dividends which can increase the value of their investment over time and long term growth potential.

Holding high yield ETFs long term allows investors to ride the market growth, get a steady income and benefit from the appreciation of their investment portfolio.

Private Debt Funds

Private debt funds gives higher yields than traditional fixed income assets by investing in private loans to businesses or individuals who don’t have access to bank financing, potential higher returns.

These funds avoids public market, gives investors higher returns but comes with unique risks. Private debt funds is good for those who want steady income and diversification.

Types of Private Debt Funds

Direct Lending Funds

Direct lending funds lends to middle market companies that can’t get traditional bank financing. These loans can be term loans or working capital financing, higher interest rates for investors.

Investors in direct lending funds gets higher interest rates because of the higher risk of lending to smaller businesses. When managed well, these funds gives attractive returns and stable cash flow.

Direct lending funds is good for investors who wants higher yields and stable cash flow. They focuses on lending to middle market companies, potential solid returns while managing risk through diversification.

Distressed Debt Funds

Distressed debt funds invests in companies in financial trouble, bankruptcy or restructuring, buys debt at a discount. These funds aims to make profit through restructuring or holding debt until maturity.

These funds is high risk but can give big returns if managed well. Distressed debt can give huge profits so it’s good for risk takers who wants high returns.

Distressed debt funds is good for investors who’s willing to take more risk for potential high gains. They focuses on distressed assets where financial recovery can give big returns over time.

Mezzanine Debt Funds

Mezzanine debt funds invests in subordinated debt, between senior debt and equity, higher interest rates for buyouts or expansion.

These funds usually has an equity kicker, investors can benefit from potential capital appreciation if the company performs well.

These funds gives regular income through interest payments and potential capital gains, good for investors who wants higher returns. Mezzanine debt funds is a good investment for those who wants both income and growth.

Pros and Cons of Private Debt Funds

Higher Yields

Private debt funds gives higher yields than traditional fixed income investments by lending to private companies, better returns than bonds or savings accounts.

In low interest rate environment, private debt funds is more attractive, investors can get reliable income streams with potentially higher returns than traditional investments.

Investors who wants higher yields prefers private debt funds, they gives more income potential than savings accounts or bond investments especially in low rate market.

Liquidity Issues

Private debt funds invests in illiquid assets, investors can’t sell their holdings before maturity, unlike publicly traded securities, no immediate access to their capital.

Illiquidity in private debt funds limits flexibility, challenging investors who needs quick access to cash, not good for short term financial needs.

Investing in private debt funds requires planning, the lack of liquidity requires alignment with long term financial goals and tolerance to restricted access to invested capital.

Credit Risk

Private debt funds has credit risk, especially in direct lending and distressed debt, where defaults is more likely, not good for investors who wants stability.

Diversification across borrowers and thorough due diligence can help reduce risks, gives more reliability to returns for private debt fund investors.

Investors must assess their risk tolerance and prepare for potential losses when considering private debt funds in their portfolio.

Infrastructure Investments

Infrastructure investments is good for those who wants stability and long term returns by supporting basic services like transportation, utilities and energy, essential for economic growth and societal development.

Infrastructure demand is growing, especially in emerging markets, giving steady cash flow and potential capital appreciation, making these investments more attractive for long term portfolio.

Types of Infrastructure Investments

Transportation Infrastructure

Transportation infrastructure investments includes roads, airports, ports and railways, generates revenue through tolls, usage fees or government contracts, stable income from vital assets that drives economic growth.

Cities are expanding, demand for efficient transport system is growing, more opportunities for infrastructure investments especially in rapidly urbanizing areas with high transportation needs and economic growth potential.

These investments gives predictable returns and capital appreciation, long term stability for investors who wants to be exposed to high demand infrastructure with growth tied to urbanization and modernization.

Energy and Utilities

Energy and utility investments includes projects like power plants, renewable energy, water treatment facilities and electricity grids, delivers essential services with steady cash flow through long term contracts or government backed revenues.

Renewable energy projects has growth potential and stability in the global shift to sustainable energy. These investments balance future opportunities with reliability, good for investors who wants environmental and financial returns.

Energy and utility investments is less volatile, resilient during economic downturn and essential to daily life, gives consistent demand and long term profitability for investors who wants stability.

Social Infrastructure

Social infrastructure like schools, hospitals and government buildings has societal role. These investments are backed by long term government contracts or public funding, gives stable and reliable revenue streams.

Returns from social infrastructure projects is lower than other infrastructure investments, but lower risk and long term stability makes it good for conservative and risk averse investors.

Social infrastructure investment demand is growing, these assets is resilient to market volatility, gives consistent low risk returns. Good for investors who prioritizes financial security and predictable income over higher and riskier gains.

Benefits and Risks of Infrastructure Investments

Stable Cash Flow

Infrastructure investments gives stable and predictable income, often tied to long term contracts or government payments. These steady revenue stream is good for investors who wants reliable and steady returns over long term.

Many infrastructure projects, especially in energy and transportation, has inflation linked returns. This feature makes it more attractive, helps to protect investors’ earnings from inflation.

Stability and inflation protection makes infrastructure investments a good choice for individuals who wants consistent income and long term financial security in their investment portfolio.

Capital Appreciation

Infrastructure investments gives steady income and potential capital growth. Urbanization and global demand for sustainable energy drives the appreciation of transportation and energy infrastructure over time.

Long term projects like renewable energy developments and urban transport systems gives dual benefits. These are reliable income streams and potential capital gains, good for long term investors.

Infrastructure investments is aligned with global trends, good for those who wants financial returns and supports sustainable future oriented projects in energy and transportation sectors.

Investment Risks

Despite the benefits, infrastructure investments has risks. Economic downturn or political instability can affect usage rates, especially for assets like toll roads or public transportation systems, and revenue generation.

Infrastructure projects requires big capital and may be subject to regulatory changes that can affect returns. Regulatory changes can make or break the viability and profitability of these investments.

Investors should consider the environmental regulations or technological changes that can affect energy sectors. These can impact long term sustainability and profitability of infrastructure investments.

Mortgage Funds

Mortgage funds pools money from investors to lend to borrowers, usually for residential or commercial property loans. These funds gives higher returns than traditional fixed income investments, good for income focused investors.

This reduces risk by not relying on a single property, making mortgage funds safer than individual property investments as it gives exposure to a diversified pool of loans.

Types of Mortgage Funds

Residential Mortgage Funds

Residential mortgage funds invests in loans against residential properties. They provides funding to homebuyers or property investors, higher interest rates than banks to attract more borrowers.

Returns from residential mortgage funds is stable, payments are made monthly or quarterly. This steady income stream is good for income focused investors.

This type of fund is good for investors who wants lower risk investments with steady returns. It gives more stable income than other higher risk investments like commercial mortgage funds.

Commercial Mortgage Funds

Commercial mortgage funds lends to businesses or investors who wants to acquire commercial properties like office buildings, shopping centers or industrial estates. These loans are bigger, reflects the higher risk involved.

These loans has higher interest rates, which means higher returns for investors. But also has more risk due to market fluctuations and business health.

Commercial mortgage funds is good for investors who wants higher yields but is willing to take higher risk. The higher returns comes with more market exposure and business stability concerns.

Mixed-Asset Mortgage Funds

Mixed-asset mortgage funds invests in both residential and commercial property loans, a balanced approach to risk and return. This diversification will help reduce the risks that may arise in either sector.

By diversifying across different types of mortgages, these funds gives more stability to investors. The mixed approach reduces exposure to any single market, makes the overall portfolio more resilient.

These funds is good for investors who wants diversified portfolio that still gives higher returns. It gives more balanced risk profile, good for those who wants stability and growth.

Benefits and Risks of Mortgage Funds

Higher Returns

Mortgage funds gives higher returns than traditional investments like bonds or savings accounts, good for income focused investors who wants better yields in their portfolio.

The interest rates on loans within these funds are higher, means higher returns for investors. This makes mortgage funds good for those who wants more income.

Mortgage funds is more attractive in low interest rate environment, where traditional income generating investments like bonds or savings accounts gives limited returns. Mortgage funds gives higher yields in this kind of market.

Diversification and Security

Investing in a mortgage fund allows individual to diversify their portfolio, spread their capital across different loans. This will reduce risk by exposing the investor to multiple assets.

Most loans within mortgage funds are secured by property, so if borrower defaults, there is some level of security. The collateral can recover some value in case of default.

Collateral reduces risk but does not eliminate it. In volatile property market, property values can fluctuate and the underlying collateral may not cover the losses in case of default.

Credit and Market Risks

Mortgage funds has risks, credit risk where borrowers may default on their loans. This can affect the fund’s performance and reduce returns for investors especially if defaults increases.

These funds is exposed to property market fluctuations, which can affect the value of the underlying collateral. Property values can affect the overall returns of the investment.

During economic downturn, the risk of borrower defaults can rise, may reduce investor returns. Investors should check the property market and borrower’s financial stability before investing.

Annuities

Annuities are financial products that gives a guaranteed income stream in exchange for an upfront investment. They are commonly used for retirement planning, gives a stable income source during retirement years.

Whether its for steady income or growing wealth over time, annuities has flexibility to cater individual needs and objectives. They can be structured in different ways to meet different financial goals.

Types of Annuities

Fixed Annuities

Fixed annuities gives a guaranteed income for a certain period or for the investor’s lifetime. The amount paid out is fixed and does not fluctuate with market conditions, so predictable payments.

This type of annuity is good for conservative investor who wants stability and certainty. It gives regular payments, regardless of market performance, so secure income without market exposure.

Fixed annuities is more appealing to those who wants financial security in retirement. It gives consistent income, so good for those who wants stability without market risks.

Variable Annuities

Variable annuities gives a flexible income stream, payouts is linked to the performance of the underlying investments like stocks and bonds. The value can go up or down based on market conditions.

These annuities has higher potential returns compared to fixed annuities, as the value of the annuity is based on market performance. But this also introduces more risk to the investor.

Variable annuities is good for investors with higher risk tolerance who wants higher returns. Poor market performance can reduce income, so investors must be prepared for fluctuations.

Immediate Annuities

Immediate annuities starts paying out almost immediately after the investment. Good for those who wants a steady income source right away, often during retirement, without waiting period.

These annuities gives payments for a certain number of years or for the rest of the investor’s life, so a consistent income stream for the investor.

They gives security of predictable payments, so good for those who needs immediate financial support. For those who wants quick access to income, immediate annuities is perfect.

Benefits and Risks of Annuities

Steady Income Stream

One of the benefits of annuities is the steady income stream, good for retirees who needs a reliable source of income to cover living expenses.

The structure of annuities ensures you will not run out of money, so financial peace of mind. This is more important for those without pension or other guaranteed income.

Annuities gives a reliable income stream, helps retirees to maintain financial stability during retirement years. Gives peace of mind, so living expenses is covered even without other guaranteed income sources.

Tax-Deferred Growth

Annuities has tax-deferred growth, means the investment grows without being taxed until withdrawals are made. This is good for long term investors, as taxes does not hinder compounding during accumulation phase.

Tax-deferred growth can give more returns over time, especially if the annuity is held for a long period before withdrawals start. This can boost the performance and long term growth of the investment.

For long term investors, the tax-deferral benefit of annuities is good. By delaying taxes until withdrawals, the investment can grow more, maximize the value of the annuity over time.

Liquidity and Fees

One of the risks of annuities is lack of liquidity. Once purchased, it’s hard to get access to the funds before the payout period and early withdrawals may incur big penalties.

Annuities has various fees, administrative fees, surrender charges and investment management fees. These additional cost will reduce the overall return of investment, so the financial benefit of having an annuity.

Before buying an annuity, investors should consider the fees and liquidity limitations. Knowing these factors is important to ensure the investment is aligned with their financial goals and needs.

Preferred Stocks

Preferred stocks is a type of equity security that combines features of both stocks and bonds. It has fixed dividend, usually higher than common stock dividend, so a steady income stream.

In exchange for fixed income, preferred stockholders have less voting power compared to common stockholders, sacrificing some control for more predictable returns and more stability than common stocks.

Types of Preferred Stocks

Cumulative Preferred Stocks

Cumulative preferred stocks ensures that missed dividends will be paid in the future, so investors will get their dividends before common stockholders if the company is financially troubled or unstable.

This type of preferred stock gives extra security to investors, so they have peace of mind that missed payments will be made before common stock dividends, so good for income focused investors.

They are reliable, so good for those who wants dependable returns and financial security. For income focused investors who prioritizes consistent cash flow and stability, cumulative preferred stocks is ideal.

Non-Cumulative Preferred Stocks

Non-cumulative preferred stocks does not allow recovery of missed dividend payments. If a dividend is skipped, it will not be paid later, so riskier than cumulative preferred stocks with dividend guarantees.

This type of preferred stock may offer higher dividend yields to compensate for the lack of dividend guarantees. Investors should weigh the trade-off between higher returns and missed payments.

Non-cumulative preferred stocks is good for investors who wants to take more risk for potentially higher returns. They are good for those who is comfortable with dividend fluctuations and higher yield opportunities.

Convertible Preferred Stocks

Convertible preferred stocks can be converted to a certain number of common shares after a certain period. This gives investors the chance to benefit from capital appreciation if the stock price goes up.

By giving fixed dividend income and the chance to benefit from stock price growth, convertible preferred stocks is good for investors who wants both stable income and growth.

Convertible preferred stocks gives flexibility, combines fixed income with stock price growth. Investors can enjoy the stability of dividends while potentially gain from the increase of the company’s stock price.

Benefits and Risks of Preferred Stocks

Steady Income Stream

One of the main benefits of preferred stocks is the predictable income stream. Fixed dividend payments makes them good for income focused investors who wants higher yields than bonds or savings accounts.

Preferred stocks is favored by retirees and investors who needs stable income. Fixed dividend gives a steady cash flow, so good investment for long term income generation.

Income focused investors who wants consistent returns may prefer preferred stocks over bonds or savings accounts as they often gives higher yields, an attractive income option with lower volatility and more stability.

Dividends and Liquidation Priority

Preferred stockholders has priority over common stockholders for dividend payments and asset distribution during liquidation, so higher chance of getting dividends and recovering investment in case of bankruptcy.

This priority gives security, so preferred stockholders will recover some of their investment if the company is financially troubled or bankrupt compared to common stockholders.

But preferred stockholders are still below bondholders in the liquidation hierarchy, so they still have some risk as bondholders are paid first before any remaining funds are distributed to preferred stockholders.

Price and Interest Rates

When interest rates goes up, fixed dividend payments becomes less attractive compared to newly issued bonds, so the market price may go down. So preferred stocks is sensitive to interest rates.

Investors should be aware of preferred stock’s price sensitivity. A rising rate environment can decrease its value, so less attractive compared to other investments with higher returns.

Preferred stocks gives steady income stream, dividends with priority over common stocks. Good for investors who wants consistent cash flow with lower volatility than common stocks.

Originally Published: https://www.starinvestment.com.au/where-to-invest-money-to-get-good-returns/