Need income? Pass-through securities might be the solution

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Generating meaningful passive income through traditional approaches has posed a challenge in today’s investing environment. Following the emergence of the pandemic, interest rates plummeted and bond yields continue to remain very low by historical standards, with the U.S. 10-Year Treasury Bond yield hovering around 1.3%. Additionally, during the pandemic, many companies or funds that typically pay dividends had to cut or pause due to the economic conditions. Rising inflation adds yet another obstacle in the search for yield leaving most income investments firmly in negative interest rate territory once inflation has been accounted for. It’s enough to leave many investors, particularly retirees and near-retirees, at a loss for what to do.

One potential solution to consider is pass-through securities, which offer investors access to groups of specialized assets that are traded on the public market and are corporate tax-exempt. Because these securities are not taxed, nearly all their earnings must be paid out to investors, which is why they are called “pass-through” securities. Earnings are passed on to investors without taxation to avoid being taxed twice. This mechanism allows investors to benefit from income streams that may be higher than if they were subject to taxes.