Top 7 Income-Producing Assets in 2021
With income-producing assets, you can shorten your path to financial freedom. They’re also vital to maintaining that freedom… but not all assets are created equal.
That’s why I’ve broken down some of the top income assets below. This list gives you a wide range of opportunities. You’ll find both traditional and newer assets to invest your money and time into.
If you’re able to add a few of these assets to your portfolio, they can provide a steady stream of income. And to start, let’s look at my favorite on the list…
Top Income-Producing Assets
Pro: Low barriers to entry and don’t require any work to maintain
Con: Volatile in the short term
When companies earn more cash than they can reasonably reinvest, they can give it to shareholders. And some companies have long histories of paying higher dividends each year. If they’ve paid larger dividends for 10 consecutive years, they’re called dividend achievers. To see the power of compounding returns, you can check out our free investment calculator.
Thanks to improving technology, anyone can buy dividend stocks with zero trading costs today. Stocks can be volatile in the short run, but if you have a long-term horizon, you can keep holding and collecting dividends. Most companies pay quarterly dividends. So you can set up a basket of stocks to match your expenses.
Also, if you’re able to hold dividend stocks for more than a year, they’re taxed at a lower rate. Overall, dividend stocks are a popular income-producing asset. They give investors steady income and also have the potential for other capital gains.
Pro: Ability to leverage at lower costs
Con: Higher barriers to entry and more hands-on to maintain
If you know a community well and know how to maintain them, rental properties can be a great asset to own. One big benefit to investing in properties is the ability to borrow – right now, mortgage rates are at record lows.
With a small down payment, you can control a full property. Then, if you’re able to line up good tenants, their rent payments can cover most, if not all, of the mortgage.
Real-Estate Investment Trusts (REITs)
Pro: Low barriers to entry and some diversification benefit
Con: Volatile in the short term
If you don’t want the headache of managing properties, you might consider REITs. They’re professionally managed. And similar to stocks, you can buy pieces of the business. In some cases, you can buy in for as little as $10.
You’ll pay some fees for the management, but it’s a passive investment. Another big benefit of REITs can be better diversification. They can focus on a wide range of properties or on farmland, retail or even prisons.
Pro: Ability to lower risk and ensure steady coupon payments
Con: Lower returns on safe bonds
Government bonds are safe income producing assets. In fact, they’re considered risk free. In return for the lower risk, though, you’ll receive a lower return. Some government bonds might barely beat inflation.
Companies also issue bonds to raise capital. And depending on which company you lend to, you might take on more risk. For example, if you buy Microsoft bonds, you won’t be taking on much risk. But if you buy a bond from a small mining company, you’ll see a higher risk of default. But in return, the company will pay higher interest on its bonds.
Pro: Higher interest return potential
Con: Higher risk of not receiving payments
In the past, banks were one of the only sources for taking out loans. But with improving technology, more people are connecting online. And platforms have popped up to increase lending and borrowing opportunities, such as LendingClub and Peerform.
You can now lend to people around the world. On a small or large amount, you can collect interest. And the interest depends on the borrowers credit rating, which you can see before lending.
Pro: Doesn’t require any money
Con: Takes a lot of upfront work
Do you know a topic really well? Writing a book or guide can be a great way to build your expertise and collect some extra income. I’ve written a few and it’s nice to see money coming in from Amazon, as opposed to going out. Depending on the quality of your book, you can find other publishers to work with.
The challenge here is taking the time to research and write a useful book. But once you’ve done that, it can provide a nice stream of income. And to be honest, e-books are just the tip of the iceberg…
Starting a Business
Pro: Big return potential and more control
Con: Requires enormous amounts of time and risk
Starting a business as an income-producing asset is the most time consuming of these options. With the right strategy, though, it can also be the most rewarding. Many of the world’s wealthiest people have achieved their success by building businesses.
It’s not easy to do and there’s plenty of risk. Many new businesses fail within the first few years. But if you’re able to succeed, you could be set for the rest of your life.
Reviewing the Top Income-Producing Assets
Wherever you are on your path to financial freedom, implementing a few of the above ideas can help. By setting up a portfolio of income-producing assets, you can improve your financial health. And if you found this article useful, maybe others you know will too. So, please feel free to share this with friends or family.
To learn even more about investing, you can also sign up for our free Investment U e-letter below. It’s packed with insight from investing experts. Whether you’re a beginner or an experienced investor, there’s something for everyone.