NEW YORK (CNN/Money) -
Stocks and bonds may rise or fall, but there are plenty of mutual funds out there that offer a nice cushion for nervous investors -- a monthly check.
The funds invest in everything from dividend-paying blue chips to high-quality corporate bonds, and offer long-term growth as well as the comfort of regular income.
"If you're a conservative investor, this is where you want to be," said Reno Martini, chief investment officer at Calvert Group, a family of bond and stock funds based in Bethesda, Md.
Here are two ways to get some regular income out of your portfolio -- one with a bond fund, one with a stock fund.
A case for bonds: Calvert Income Fund
If you're looking for solid income, bond funds pay higher yields than stock funds. (Click here for more on different types of bond funds.) Ultra-safe government bonds produce the tamest income, while high yield bonds -- also called "junk" bonds -- will deliver the most.
Income-producing mutual funds:
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|||Growth & income stock funds
|||Equity income stock funds
|||Balanced funds (also called hybrids) that invest in stocks and bonds
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Yields vary from 1.5 percent for a money market fund to as much as 11 percent for a junk bond fund, said Eric Jacobson, a bond fund analyst at Morningstar. The income from a bond fund will vary from month to month, since bond prices fluctuate.
But some bond funds will set a monthly dividend rate based on what they expect to earn, because they know their investors want the reliability of a check that won't change, Jacobson said. In some cases, if they fall short, they may need to use spare cash in the fund to make up the difference. Other bond funds will simply pay out what they earn every month, regardless of whether it's more or less. You can find out from the fund company which method it uses.
Calvert Income Fund, with $1.2 billion in assets, has a yield of 6.6 percent and is the top performer in its category over five and 10 years, according to Morningstar. It invests about 45 percent of the portfolio in middle-quality corporate bonds and 11.8 percent in riskier junk bonds.
While the Federal Reserve has hinted it may raise rates this year, which would hurt the value of bond funds, your monthly check actually improves, Martini said. When rates go up, bond prices fall. But when prices fall, that means the yields rise.
That means the 6.6 percent yield that you earn may rise to 7 percent by the end of the year if rates are higher, Martini said. Of course, your overall return on the fund will be less; you could have a net loss of 2 percent since the prices of bonds would be less. But maybe a paper loss won't matter with a fatter monthly check.
"Strictly looking at income, rising rates will be better because you'll get more every month," Martini said. "It's not a bad thing that rates are rising."
A case for stocks: Strong Dividend Income Fund
For people who want the punch of stock appreciation, a fund that invests in dividend-paying stocks might be the answer. Strong Dividend Income invests in stocks that pay out an increasing dividend, said manager Mark Luftig. Your monthly check won't be as thick as with a bond fund, but the dividend is downside protection on the stock.
The Strong fund pays a monthly dividend of 2 to 2.5 percent. But the overall annual return since inception is about 12 percent a year, including dividends.
In an era of Enron-induced suspicion, nothing might seem safer than a dividend-paying stock. Simply put, it's when a company distributes its profits to investors. According to Hoover's, a financial publisher, more than 900 stocks have a dividend yield of 3 percent or more.
You'll find the best dividends in value-oriented stocks such as utilities, consumer businesses and financial companies. Growth companies typically do not pay dividends because they tend to funnel all of their earnings back into the business. (That's also why you rarely see a tech company that pays dividends.)
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The Strong fund invests in companies that are mature and stable such as Citigroup, Fannie Mae, IBM and Johnson & Johnson. Many of the fund's stocks have a dividend that increases every year, he said.
For example, Citigroup's dividend has risen every year for the past five years, with an average annual increase of 30 percent. Fannie Mae and IBM's dividends increase an average of 9 percent a year, while Johnson & Johnson's has risen 13 percent on average. Other holdings include Wells Fargo, Washington Mutual and Bank of America.
The fund, with $224 million in assets, was previously called Strong American Utilities Fund. It changed its name and strategy in December to reflect a value-stock focus. It is up 1.7 percent year to date as of April 10, putting it in the top third of its category.