High Return Investments for Low Income People

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Betterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements to sign up and no transaction fees.

High return investment advice

Olivia asked:

Greetings Matt,

Do you know of any investment return situations for lower income people? The best out there for our situation seems to be ShareBuilder, or CDs. The idea of a “side hustle” has crossed my mind as well, like selling on eBay, or writing more extensively. Doing daycare, heavy lifting, anything that ties up the car, etc. are not options. Thanks for putting your mind to this.

Regards, Olivia

If you have debt…

The easiest way to make a high return on your investments is to pay off debt.  If you have high interest debt, focus on paying that off.  When you pay off debt you continually lower the principal value of that debt thus reducing how much your debt costs you each month.  I currently choose debt reduction over investing because I earn more by reducing debt.  When that debt is gone I will shift my focus to building my Emergency Fund and investing in low-cost index funds.

If you have NO debt…

  1. Build a 3 – 6 month Emergency Fund using a high yield savings account by funding it with automatic monthly contributions.  I prefer Capital One 360 as a bank.  You could also go with CDs but then you sacrifice the liquidity of your funds for no added benefit – at the time of writing CD rates are comparable to high yield savings accounts.
  2. If you already have your Emergency Fund in place consider peer-to-peer lending and invest with Lending Club. or Peer to peer lending is one of the most sound investment advice I can give would be
  3. Another wise choice is to focus your efforts on long-term, buy & hold investing using low cost index funds or ETFs.  With income limitations, a wise choice is to invest with Betterment.  Betterment is one of the easiest, most effective ways for the layman to invest in index ETFs, which is really the best investment I know of… and they’re currently offering a $25 bonus for all new accounts, so it’s a great time to check them out.

$25 Betterment Account Bonus

Betterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements to sign up and no transaction fees.

Save for Emergencies, invest in peer-to-peer loans, and focus on index funds and ETFs.

One of your biggest allies to saving and investing is automatic deposits and automatic rebalancing… which is another reason I suggest you invest with Betterment.  They allow you to set up regular automated contributions, make it easy to determine your risk profile and diversify accordingly, and automatically rebalance your portfolio for you, all for a fee lower then any financial planner will offer.  Good stuff.

Regardless of debt amounts…

You mention starting a “side hustle” – I would recommend you follow through on this.  Making money from a blog is possible, but not easy.  It’s very time consuming and is usually slow to show returns.  Unless you can afford to work for approximately 6 months with no return, then a monetized blog may not be your most lucrative route.

Make sure you choose a business idea you are passionate about.  Life is too short to spend our time doing things we do not like for money.

In Summary…

  1. Pay down debt.
  2. Build your Emergency Fund in a high yield savings account.
  3. Invest in peer-to-peer lending with Lending Club.
  4. Invest in index ETFs with Betterment – automation is your best friend.
  5. Start your own side business you’re passionate about.
If you need debt help or personal finance advice – Ask Matt Jabs.

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Betterment is one of my two favorite ways to earn interest on my savings! They have an awesome program for the Average Joe to save and invest simply and effectively. There are no minimum balance requirements and no transaction fees. Read my Betterment Review or open an account to get started earning now.

1 Mike Piper

Good advice, Matt. I completely agree with the priority:
1. Pay off high-interest debt.
2. Build emergency fund (size depends on security of job, kids or not, etc)
3. Contribute to IRA/401k.

And I second the vote to focus on low-cost index funds or ETFs! 🙂

Also, depending upon Olivia’s income level, she may qualify for the Retirement Savings Contribution Credit–a tax credit that provides a bonus for contributing to an IRA or 401k.

2 Robert Espe

Sound Mind Investing

Index funds are good, but better is possible. Christian investment newsletter, best $9 I spend every month.

3 Matt Jabs

Robert is correct, SMI is a great source for Christian-based investments. I actually have just begun an affiliate relationship with Sound Mind Investing and am good friends with Matt Pryor (the founders son.) I simply have not yet had time to promote their excellent newsletter.

4 Mike Piper

Before spending money on (and more importantly, following the advice of) an investment newsletter, I’d urge investors to read the following paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=937407 (Specifically, section 5: “Persistence.”)

Yes, it’s absolutely possible to outperform index funds–almost by definition, a large number of investors will outperform the market each year. But it’s important to recognize that:
1. There’s little to no evidence of persistence in investment newsletter performance. (That is, the fact that an investment newsletter has beaten the market previously is nearly meaningless as a reliable indicator of future performance.)
2. Most studies indicate that the majority of investment newsletters underperform the market. Hulbert Financial Digest’s data estimates that about 80% of newsletters underperform.

5 Matt Jabs

Exactly. The energy spent trying to beat index funds in the long term is simply not worth it… if you can beat them at all.

That said, the SMI newsletter is full of wisdom, but like Mike mentions… it is not free.

6 Olivia

Thanks all of you, for your counsel.

We have no debt and we just reached the 3 month mark on our emergency fund. We’re budgeting what we can into it. My husband has a small IRA and a small pension through the denomination. (He’s a pastor.)The only downside is we don’t have tons of lead time. (We’re in our 50’s, with kids still at home.) The upside is there’s no manditory retirement age. So this is where we have to trust God to provide and give us wisdom as our situation is a bit unsual. Prov 15:22, Mal. 3:10, Ps. 37:25

7 Matt Jabs

Olivia, since you are already funding your IRA, make sure you check into the Retirement Savings Contribution Credit that Mike mentioned. Based on your income, this credit could offer quite a bit of tax relief.

Lastly, walk in obedience to Gods word and he promises to be faithful to provide for our needs… so make sure you exercise your faith and trust in his promises! 🙂

8 Early Retirement Extreme

If you have debt at an interest rate that is higher than your marginal tax rate. Pay that off.

If you have debt with a rate lower than your marginal tax rate, contribute to an IRA/401k for the tax deduction until they are maxed out.

If you have debt with an interest rate that is really low (~<2%) and you already maxed out the IRA/401k option, I would rather open a broker account than pay off debt. It is easy to get returns above 2%.

If you want to invest to increase your income, income funds do exist. I prefer closed-end funds myself like EHI and EOS. To do so, find a zero commission broker and buy when you have money. These pay about 10% annualized on a monthly basis. However if you are in the lowest income tax bracket, I would go for qualified dividends instead, like MO or T which yield 5-7%. You will be paying either 5% or even 0% taxes on those.

Okay, just saw the comment above. At 50+ you should have catchup contribution limits which I believe are $6000 for both of you on the IRAs. (Better check, IRS publ. 590). Max those out. If you are also very close to retirement age be very careful about committing fully to a market index fund. Lots of people close to retirement age were 100% in index stock funds and they got hurt pretty badly last year.

9 Matt Jabs

Olivia, since you have no non-mortgage debt and you have 3 months worth of EF, you should max out your IRA contributions, and remember that if eligible… your contributions may be deductible. Also, as Jacob @ ERE said you can make IRA catch-up contributions. Definitely do this if possible. Here is a post I recently wrote on IRA contribution limits.

Speed mortgage repayment if possible because less debt pays EXACT returns no matter what, and if your husband ever loses his income… less debt really pays off.

10 Walter

If there’s one thing I missed then that having an emergency fund. How could I’ve been so careless. It’s time for me to focus on this one, especially now that I have a child. Thanks for this. 🙂

11 Matt Jabs

Great to hear Walter… that way you can use your Emergency Fund savings instead of a credit card if you have an emergency.

You can use my Savings Advice page to find a solid bank that offere high yield savings accounts.

12 Olivia

Mike Piper’s advice for the IRA contribution credit was spot on. Looked over Trent’s “50 Side Businesses…” article you linked to, and noticed he cited Esty quite a bit. Did you know they also deal in “vintage” items, not just crafts? That’s something worth pursuing. This has been a very helpful discussion. Thanks again.

13 FS

Hi Olivia, just curious how old your kids are if they are still at home?

If they are of working age, perhaps politely ask them to leave or pay u guys rent to save/make money?

14 Olivia

One is in community college and is paying some of his own way. The other is in eighth grade.

15 Rich Dad Wisdom

Do you think that your advices in the article are sound? Mutual funds and ETF?
Be careful in giving out financial advices!

16 Olivia

Thanks Rich Dad Wisdom. I weigh every piece of counsel carefully and make a distinction between funds needed to live off of (household monies) and those that can tolerate well thought through risk (small bits of personal side earnings earmarked for “dream goals”).

17 Ray

Hi Everyone,
Very sound advice within the article. Here in Canada, the federal government started a new program which is excellant for low-income earners, called a TFSA (Tax Free Savings Account). Costs nothing to start, maximum $5,000/ year, may be withdrawn for any reason and replaced the following year and can be added to that years $5,000. The money can be invested in: high-interest savings account, money market, bonds, mutual funds (including indexes), or stocks. And all profits are tax excempt. As a low income earner myself, I have followed the route described, with the help of Gordon Pape, it works!
Cheers, Ray

18 SKing

I’ve looked into Peer to Peer lending, but I ran into a wall when I found out that it’s not available/legal in my state of residence… Oregon. Any suggestions on how I might get around this? TIA

19 Matt Jabs

Not sure, other than perhaps calling your politicians.

20 Hunter

Paying down debt is a great place to begin, I toally agree. Your return on investment is exactly equal to your interest rate, guaranteed. That’s a lot more certain than the stock market.

21 Matt Jabs


22 Rob

I’m of the mind that you should build an emergency fund alongside paying down debt. You’ll be giving up on some returns over the short term, but having an emergency fund helps keep you out of debt. If you concentrate solely on paying down debt and put the emergency fund off until afterwards, you’re leaving yourself wide open to being dragged back down if something goes wrong.

23 Matt Jabs

What you mention is precisely the reason Betsy and I saved $3k+ for emergencies, along with other savings for routine maintenance and irregular expenses.


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25 Alex

Some sound advice. I’m currently in the process of paying down my credit cards but have chosen to save10% of my earnings, use 20% to repay debt and live off the remainder. It costs me a bit more in interest but after reading ‘The Richest Man in Babylon’ by George Clason I think this is the best way to tackle it.

26 Emily

ITA with the steps. Also loved that you threw in building a biz around a passion, which is often overlooked as an “investment” but may be actually better than throwing money into the stock market.

27 Kevin @ Debteye


I really love what you wrote: “I currently choose debt reduction over investing because I earn more by reducing debt. ” Couldn’t have said it better!

28 Thomas

I completely agree, although I would like to point out a small flaw. Because you are lending directly to borrowers, you must be an accredited investor. Lending vlub and prosper both have this requirement. Most people looking for low income investing won’t be able to meet this requirement. Now they don’t require any proof, but I prefer to live by their guidelines for my safety. other than that, great advice. I highly recommend getting out of debt as a first priority.

29 Matt Jabs

Do you have a link to your info source? The only place I found any info like that refers only to Kentucky residents.

30 Paul

It’s in the prospectus for Lending Club. Investors must earn an annual income of $70,000 /and/ have assets in the amount of $100,000, not including vehicles and homes. Or investors must have assets totalling $250,000. the rules are slightly different for California, and Kentucky simply requires a person to be an “accredited investor.”

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