Income investing

Money For the Rest of Us: Investing in Business Development Companies and other Niche Assets

With interest rates rising, and bond prices falling, investors are looking elsewhere for income and reasonable yields in a period of high inflation. They may be finding it with some niche assets on the market.

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  • One such niche asset is the business development company, or BDC. Trading like a common stock, a BDC provides capital to small businesses. They may do so in exchange for debt or equity. They usually carry high yields, often in the 8 percent range.

    On the Money for the Rest of Us podcast, a full 10 unusual asset categories that are available on stock exchanges are explored. They include closed asset funds, master limited partnerships, and BDCs, among others.

    Each of these asset classes have their pros and cons, but tend to provide high income to their owners as a form of pass-through income.

    The higher income may be taxed at a different tax rate than traditional dividends. Or some of the income may be considered a return of capital.

    With such high yields, investors may not see much in the way of capital gains. However, for those seeking current income, these alternatives may fit the bill.

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  • Currently, cash in the bank offers nearly no yield, or even a negative yield after inflation. So the higher return of these alternatives may be attractive for investors now.

     

    To hear the full list of niche assets and what makes them different, listen here.