Check-A-Month Plan Offers Monthly Income with Less Risk

Evan R. Guido Financial Advisor

Most individuals have multiple recurring expenditures - mortgage or rent, utility and phone bills, child care, college expenses, car payments, etc. Imagine receiving a check each month to supplement your current income and to help cover these costs. It's possible through the Check-A-Month Plan, a fixed income investment that has a place in almost every portfolio.

Unlike common stocks, fixed income securities provide a greater degree of certainty regarding the return of principal at a future fixed date. Investors seeking greater capital security and assured income often invest in bonds.

Bondholders are creditors rather than part owners or shareholders. Bondholders lend money to the U.S. Government (treasury bonds), corporations (corporate bonds) or municipalities (municipal bonds). In turn, the bond issuer agrees to repay the bondholder the amount borrowed at maturity, plus interest at defined intervals.

A popular fixed income strategy using bonds that offers diversification and can usually be customized to meet investors' unique needs is the Check-A-Month Plan. This approach provides exactly what it promises: reliable, monthly income from an investment in high-quality bonds. Check-A-Month Plans work with a variety of bonds including those issued by corporations, municipalities and the U.S. Treasury and its agencies.

The Check-A-Month Plan consists of six bond issues with different maturities, each paying interest to the holder twice a year. The portfolio is structured to stagger the bonds' interest payment dates, providing an interest check each month. Income flow will remain steady, even during periods of declining interest rates, because the coupon rate is fixed for the life of the bond. When one bond issue matures, bondholders have the option of keeping the principal amount or reinvesting it in another bond to maintain their Check-A-Month Plan. This makes the strategy ideal to supplement current income and to fund college expenses, IRAs or other retirement accounts.

Following is a hypothetical example of how a Check-A-Month Plan might be structured using corporate bonds. Each bond represents $25,000 in matured value.

This is a hypothetical example that is shown for illustrative purposes only and does not represent investment in any particular issue.

This hypothetical investment scenario would provide:

• Annual Income of $7,975.

• Average Monthly Income of $664.

Whether deciding how to invest a sudden cash windfall or transporting other assets, fixed income investing can deliver a degree of certainty that's sometimes hard to beat.