The best CD interest rate I can find is 2.3% for a 7-year CD offered by Bank of America at the time of this post (5/7/12). 2.3% is pretty weak, but the next best rate I’ve seen from a known institution is around 1.85% for the same duration.
I’m seeking yield to further enhance my passive income streams for financial freedom (highlights the various income streams). My current CD monthly interest income is around $2,800 a month and I’ve got roughly $225,000 in liquid cash that’s sitting in a money market account earning 0.2% interest.
Having $225,000 in a money market earning 0.2% interest is a lousy $400 a YEAR, which means I can’t even buy an overpriced iPad like millions of crazy rich folks are buying nowadays! The amount of money people have to spend on material things makes me so bullish about the economy. People don’t spend money they don’t have, just like I can’t drive a Ferrari Italia that I don’t own.
Everyday I keep my money in a pathetic money market is another day I’m missing out on free money. As such, I have been focused for the past couple of weeks on searching for ideal products to invest my money.
Narrowing the investment choices down to the following:
1) 2.3% 7-year CD with Bank of America. Guaranteed estimated return $5,175 a year / $431 a month and bringing my CD passive income to $3,243 a month.
2) 6-10% potential returns via peer to peer / social lending. Non guaranteed $13,500-$22,500 a year / $1,125-$1,875 a month. Have $50K ear-marked to this stream if and when the partnership comes through. But, could invest more if things work out well.
3) Structured CDs, with a guaranteed rate of 2% for the first two years and LIBOR + 1.45%. $4,500+ a year / $375+ a month.
4) Online trading via E-Trade or ScottTrade. No guarantees. + or – $40,000 a year.
5) Private equity investments. I’ve received a couple offers to invest in some start-ups in the Bay Area. 70% chance for a -100%, up to a 5-10% chance for a 500% return.
6) Rental property. Borrow at 3%, earn a rental yield of 8%. Estimated cash on cash return is 5% therefore $10,000 a year / $833 a month. Return on principal based on potential appreciation is different. Problem with rental property is that it is a PITA compared to online income or CDs.
7) Structured Notes. Similar to Structured CDs, but not FDIC guaranteed, and different return profile.
Not too narrow a list huh? The goal is to raise the $6,500 gross a month passive income to around $15,000 a month in order to have a comfortable lifestyle enough to take care of a family of four. The other goal is to have money work for me so I can focus on my business. The strictly passive income goal (excludes online and all other income) may change over time, but for now, $15,000 a month is what I’m shooting for.
If possible, please don’t get distracted by the capital amount discussed and if it helps, use whatever capital amount that makes you feel comfortable. The discussion focus should be on understanding structured products and feedback on a couple choices below.