Income investing in 2025: not your grandparents’ term deposits

Earlier this year, I was fortunate to receive an inheritance. Whilst not ‘retirement’ money, it is sizable enough to be considered ‘hurt’ money (i.e. it would hurt to lose it). Furthermore, with two young boys, I consider myself more so a steward of this capital rather than its primary beneficiary.

So, rather than going and buying my dream car (Porsche 911, if you’re wondering) I made the wise decision to invest it for the long term. But in what? Crypto is out of the question – too risky, as is putting it in a high-interest (pfft) bank account. Thinking there was little more to consider, I settled on income-generating investments. But what I quickly discovered is that income investing in 2025 is far more nuanced than it used to be.

For decades, income investing was synonymous with a few high-dividend blue-chip ASX names, a term deposit, and perhaps a handful of government bonds. 

Today, that universe has expanded dramatically - from infrastructure and hybrids to private credit and beyond. 

Here, I attempt to unpack the current state of income investing, the forces that have reshaped it, and the increasingly diverse toolkit available to Australian investors.

And with this wire marking the launch of Livewire’s 2025 Income Series, over the next few weeks, we’ll be sharing expert panels, in-depth interviews, and sharp editorial insights to provide you with the tools and perspectives to build resilient, income-generating portfolios for the years ahead.

So, whether you’re a retiree seeking reliable cash flow, a wealth manager adjusting to shifting market conditions, or looking to park an inheritance to build long-term wealth, The State of Income Investing in 2025 and Beyond will deliver the knowledge you need to stay ahead of the curve.

From ZIRP to yield: how we got here

For most of the past decade, the income game was tough. Central banks slashed interest rates to near-zero in response to the pandemic, starving savers of returns. Investors were forced up the risk curve - chasing dividends, turning to REITs, or experimenting with alternative income strategies.

But since 2022, rising inflation changed the game. The RBA lifted the cash rate from 0.1% to over 4%, bond yields surged, and even the humble term deposit returned to relevance. As of mid-2025, the cash rate is easing again (now around 3.85%), but we’re a far cry from the days of near-zero rates.

This new environment offers both opportunity and complexity. Safer assets finally offer decent yields, but income investors now face a wider - and potentially more confusing - set of options. That was the real challenge I faced: how do you build a sustainable, risk-conscious income stream when there are so many moving parts?

The income spectrum: risk vs return

Below is a summary of key income-generating assets available to Australian investors in 2025. They’re ranked from least to most risky, with indicative yield ranges based on current market conditions.

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What role does each asset class play?

1. Cash & Term Deposits

Cash is finally cool again. Thanks to higher interest rates, term deposits now offer meaningful returns. While not a long-term growth engine, they’re ideal for capital preservation, short-term needs, or as a stabiliser in uncertain markets. I parked a portion of my inheritance here early on – a safe place to sit while I considered my options.

2. Government Bonds

After years in the wilderness, government bonds are back on the radar. Current 10-year yields of 4%+ offer a viable income stream and provide portfolio protection if economic growth slows or equities fall. For conservative investors or retirees, they can be a reliable foundation.

3. Investment-Grade Corporate Bonds

With yields around 5%, corporate bonds provide a middle ground: more income than government bonds, less volatility than equities. Most Australians access these through ETFs or managed funds, giving diversification and regular interest payments. Many view them as the workhorse of a balanced income portfolio.

4. Hybrids & Subordinated Debt

Hybrids, especially bank-issued ones, are a uniquely Australian income solution (although they are set to be phased out by 2032). They offer 6–7% yields (often franked), but come with equity-like risk in stressed scenarios. Subordinated debt (Tier 2) is marginally safer. It’s important to understand that while the yield is attractive, these aren’t “set and forget” assets.

5. REITs and Property Trusts

REITs offer exposure to property income without the headaches of direct ownership. Yields are compelling, but returns can be volatile due to rate movements and sector headwinds (e.g., office vacancies). Many investors are drawn to industrial or retail-focused REITs with stable cash flows and well-located assets.

6. Infrastructure

Infrastructure assets – like toll roads, pipelines, and ports – deliver steady, inflation-linked income. Listed infrastructure companies (e.g. Transurban, APA Group) offer solid yields with defensive characteristics. Unlisted infrastructure is harder to access but can be compelling for long-term investors. Infrastructure can be a great diversifier – especially in volatile markets.

7. Dividend Equities

For many Australians, income investing starts (and ends) with big-name dividend stocks. The banks, Telstra, Woolworths - these are household staples in portfolios. Yields are strong (especially with franking), and there’s potential for growth. But investors must stomach volatility. If allocating a chunk of your portfolio here, remember that whilst it’s familiar and reliable, it’s not without risk.

8. Private Credit / High Yield

These offer headline-grabbing yields, often above 8%, but come with strings attached: credit risk, illiquidity, and less transparency in some cases. Some private credit funds have performed well, but due diligence is key. For many investors, this makes up a smaller allocation in a diversified income portfolio – enough to boost yield, not enough to lose sleep over.

Things to remember for the intrepid income investor

• There’s no single “right” way to generate income. The best approach depends on your risk appetite, time horizon, and need for liquidity.
• Blending asset classes is essential. As with any investment strategy, it’s wise not to go “all in” on any one option. A well-rounded income portfolio will include a mix of term deposits, bond funds, REITs, dividend stocks, and a touch of hybrids/sub debt and private credit.
• Know what you own. The yield might look great, but always ask: What am I giving up to get it? Whether it’s liquidity, credit quality, or capital security - there's always a trade-off.

Conclusion: the new era of income

In 2025, income investing in Australia is more dynamic, diverse, and rewarding than it’s been in years. Higher rates have reset the landscape, giving investors access to real yield across the spectrum.

But with more options comes more complexity. Investors must look beyond the traditional mix and understand the role of each asset in their portfolio. Income can come from cash, bonds, hybrids, property, infrastructure, and even private credit - each with different risks and rewards.

Whether you're investing a windfall or building a retirement income stream, the key is education, diversification, and clarity of purpose. My own journey as both an investor and editor at Livewire has taught me that there’s never been a better time to build a smart income strategy, so long as you do the work to understand what’s out there.

In that vein, stay tuned over the coming weeks as we uncover the trends, strategies, and expert insights shaping the future of income investing.