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High yield investments offer additional income, but high returns go hand in hand with greater risks. Too many people get caught up in the yield, as if it was free money. It’s not.

When you evaluate investments that appear to pay more you should approach them like Sherlock Holmes, with a healthy degree of skepticism as there are realistic cause and effect relationships. The return is higher because the risk is higher. Be sure to question everything and pay attention to the details.

Doing your detective work means knowing how the high yield investment generates its returns and what factors would cause those returns to go down (or up.) You should only consider buying after you understand these factors such as financial operating condition, industry competitors, and overall economic conditions.
Yields which are significantly higher than safer alternatives like treasury securities (which are backed by the U.S. government).

Start your search for yield with the list below. Just don’t forget, although they may generate a significant amount of monthly (or quarterly) income, with high yield investments, expect your principal to fluctuate, sometimes drastically.

High yield bonds are issued by companies whose financial strength is not rock solid. Often referred to as “junk bonds,” they must pay a higher yield than other safer alternatives in order to attract investors. You can buy individual high yield bonds, but most investors would find high yield bond mutual funds to be a more attractive and diversified option.

Think of a REIT like a mutual fund that owns real estate. The REIT then passes along the rental income from that real estate to you, the investor. REITs can be publicly traded or private, and may own a broad portfolio of real estate or a narrow one. Through REITS you can invest in apartments, hotels, office space, retail space, healthcare related properties, mortgages, storage and other types of real estate related property.

Technically a preferred stock is an equity investment, but they often get compared to bonds as they are highly interest rate sensitive. Preferred stocks pay dividends at a fixed rate and a company is required to pay dividends to their preferred stock holders before a single penny gets paid out to common stock holders. This feature can make them an attractive source of high yield investment income.

If you’re in a high tax bracket, consider a closed-end fund that owns municipal bonds. Nearly all such funds use borrowed money to boost income. One that doesn’t is Nuveen Municipal Value Fund (NUV, $10, 4.4%), which mostly buys high-quality, long-term bonds. Although at first glance the fund’s yield seems to disqualify it from this group, you really need to look at its taxable-equivalent yield—what someone would have to earn from a taxable bond to equal the yield of a tax-free bond. In this case, 4.4% is the equivalent of a 6.1% taxable yield for someone in the 28% federal tax bracket and 7.3% for an investor in the top 39.6% bracket.

The U.S. Treasury has several types of bond investments for you to choose from. One of the lowest risk is called a Treasury Inflation Protection Security or TIPS. These bonds come with two methods of growth.
The first is a fixed interest rate that doesn’t change for the length of the bond. The second is built-in inflation protection that is guaranteed by the government. Whatever rate inflation grows during the time you hold the TIPS, your investment’s value rises with that rate.
For example, say you invest in a TIPS today that only comes with a 0.35% interest rate. That’s less than certificate of deposit rates and even basic online savings accounts. This isn’t very enticing until you realize that, if inflation grows a 2% per year for the length of the bond, then your investment value increases with that inflation, and gives you a much higher return on your investment. TIPS can be purchased individually or you can invest in a mutual fund that owns in a basket of TIPS.