When trying to generate a reliable income from investments to cover expenses and lead a fulfilling life, there might be certain sectors where it is difficult to outperform established companies, such as the banking sector. This sector is critical for providing financial services that other businesses struggle to match. Companies wishing to provide similar services often transform into banks themselves, recognizing they cannot surpass banks without becoming one themselves, as seen with NewtekOne (NEWT) turning into a bank.
When using a unique Income Method for investments, the financial sector might offer few better options than banks. Here, we will discuss two methods to invest alongside banks:
1. John Hancock Financial Opportunities Fund (BTO) — This Closed-End Fund (CEF) invests in banks and benefits from their low-risk structural position and strong credit quality among borrowers. While there could be stress on commercial real estate that may lead to credit losses in some banks, the current risks are much lower than market expectations, making BTO a promising investment opportunity.
2. BlackRock AAA CLO ETF (CLOA) and Janus Henderson AAA CLO ETF (JAAA) — These funds invest in Triple-A Collateralized Loan Obligation (CLO) debt, providing stable, high-yield income while sharing similar investments with major banks, insurance firms, and high-net-worth individuals. These ETFs mainly focus on senior tranches with minimal credit risk. As a floating investment, their yield can change with interest rates, and distribution can decrease if interest rates drop. They have relatively low price volatility and offer a lower-risk, higher-yield alternative for those who prefer stability over higher rewards.
The goal is to balance the level of risk and the amount of income earned. By diversifying investments, investors can generate significant income with limited risk, such as the investment opportunities presented by BTO, CLOA, and JAAA, to achieve a prosperous and stress-free retirement. To help with this goal, my Income Method was created to provide clear-cut solutions for income investing to lead a comfortable, relaxed life in retirement. It is important to embrace the Income Method’s sustainable income-generation capabilities if beating them appears unattainable.
