With the economy not recovering fast enough, the Federal Reserve will most likely keep interest rates at low levels for quite awhile. These low rates, although designed to spur economic activity, have the potential to derail and punish those who need them to be high: retirees. Many traditional sources of income such as certificates of deposit (CDs) and bond funds like the iShares Barclays 1-3 Year Treasury Bond (NYSE:SHY) are paying next to nothing. As many Baby Boomers begin the transition into retirement, finding sources of reliable income becomes ever more important.
IN PICTURES: SPY) is only 1.86%. For many, that might not be enough. The proliferation of exchange-traded funds (ETFs) has made it possible for portfolios to ratchet up their income, while adding some diversification benefits. New asset categories, once reserved for institutional investors, are now available for retail investors. Here are some ways to add that extra income. (To learn more about the importance of dividends, see How And Why Do Companies Pay Dividends?)

Real Estate Barons
Real estate investment trusts (REITs) have traditionally been a source of income since their creation. Most investors are familiar with equity REITs, or those that invest in and own properties. These companies own shopping malls, office buildings and warehouses, and then collect rent from tenants. Less than 10% of the sector falls into the category of mortgage REITs. Companies like Capstead Mortgage (NYSE:CMO) or Chimera Investment (NYSE:CIM) loan money to owners of real estate or more commonly, purchase existing mortgages or mortgage-backed securities (MBSs). However, individually these securities can be hard to evaluate. The iShares FTSE NAREIT Mortgage Plus Capped Index (NYSE:REM) follows a basket of 52 mortgage REITs as well as banks with strong mortgage operations. For the added risk, investors are rewarded with a 10.58% dividend yield.

A Preferred Payout
Investors looking for yield and some stability might want to take a look at preferred stocks. Crossing the stock-bond tight rope, these assets in exchange for zero voting rights, get a steady stream of dividend payments and preference in bankruptcy situations. Individual preferred stocks are exchange traded, but ETFs make adding the sector easy. The SPDR Wells Fargo Preferred Stock (NYSE:PSK) follows a basket of 159 different issues and currently yields just over 6.5%. For investors looking for a little more income out of their preferred investments, the PowerShares Financial Preferred (NYSE:PGF), which strictly focuses on issues from financial firms, yields 7.32%. (For related reading, see A Primer On Preferred Stocks.)

An Emerging Bond Play
Most portfolios have access to emerging markets through equities to gain exposure to their red-hot economic growth. Many overlook their debt markets. The appeal of playing emerging markets through their debt securities is because, unlike the U.S. or Japan, these nations often have lower debt-to-GDP ratios. For example, Brazil has an approximate 60% debt-to-GDP and for Malaysia it's around 50%. Many emerging nations also have investment-grade ratings, but pay higher yields than domestic counterparts. The PowerShares Emerging Markets Sovereign Debt (NYSE:PCY) tracks bonds from all over the developing world including South Africa and the Ukraine. The fund pays a monthly 6% dividend.

Bottom Line
With many analysts predicting another year of low interest rates, finding suitable income is still quite challenging. Nevertheless, the ETF boom has opened many higher yielding asset classes to the retail world. The previous examples are just of the few sectors that investors can find additional income and yield for their portfolio.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  2. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  3. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  4. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  5. Investing Basics

    6 Reasons Hedge Funds Underperform

    Understand the hedge fund industry and why it has grown exponentially since 1995. Learn about the top six reasons why the industry underperforms.
  6. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  7. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  8. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  9. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  10. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!