I’ve been in the investment game for decades, dealing with stocks, bonds, options, futures, Forex, and digital currency. Over time, I’ve experienced both losses and gains, and through this journey, I’ve learned a lot. Today, I want to share a strategy that could help anyone looking to retire early or anyone aiming to generate a steady monthly income from their investments.

Let’s tackle this with some numbers. For those aged 55 and above in the United States, the average savings is approximately $185,000. The goal is to set up a system where you can generate $1,000 a month, equivalent to $12,000 a year, without ever touching the principal. The good news is that it’s possible, but it requires smart and risk-minimized investment decisions.

One key lesson I’ve learned is that simpler strategies often yield the best results. More complicated investments usually lead to more losses. To generate $1,000 a month from $185,000, you need to achieve a return of about 6.5% per year. This may seem high, especially when banks offer rates closer to 2%, but it’s achievable if you’re willing to take on some smart risks.

When I talk about risk, I’m not referring to gambling it all away in a casino. Instead, I mean the possibility of seeing your principal’s value fluctuate due to market changes. While a savings account guarantees your $185,000 won’t drop in value, this security comes with lower returns. To reach higher returns, you have to accept some market-value fluctuations. However, it’s important to understand that you only lose money if you sell your investments when their value is down. If your goal is steady income, the paper value of your principal shouldn’t concern you.

A smart investment strategy involves accepting these paper fluctuations while focusing on generating consistent income. You won’t touch your principal; your concern is the steady $1,000 monthly payout. Understanding this compromise is crucial. Additionally, diversifying your investments is essential. Putting all your money into one or two investments is risky. Diversifying across various investment classes and companies mitigates risks. Even if one investment fails, your entire portfolio won’t collapse.

For a 6.5% annual return with acceptable risk, closed-end funds (CEFs) are a good option. They offer decent returns with controlled risk by investing in multiple stocks and bonds and enhancing returns through borrowing. A couple of my preferred CEFs are BlackRock Corporate High Yield and BlackRock Enhanced Equity Dividend Trust. These funds invest in corporate junk bonds and high-dividend companies, respectively, yielding around 6.6% to 8.5%.

Another good option is the Invesco CEF Income Composite Fund, a fund that further reduces risk by investing in other funds, offering a yield of about 7.7%. For the more risk-averse, short-term Treasury bonds, like the iShares 1-3 Year Treasury Bond Fund, provide a safer option with a current yield of 1.72%.

Avoid putting all your money in the stock market for a steady income, and long-term bonds pose risks in rising interest rates. Annuities are another option to be cautious of due to hidden costs and low returns.

Remember, the information shared here is based on my personal experiences, not professional financial advice. Always conduct your own research before making any investment decisions.