Wealth Creating Investments
For more than two decades, Investment U has been a trusted resource for investors focused on wealth creation. However, not all investments are created equal. While some opportunities may turn out to be wealth creating investments, others are practically guaranteed to lose money or even reverse your journey to financial freedom. There are so many investment options out there, at times it can be difficult to know which ones to focus on.
How Can Investors Identify Wealth Creating Investments?
Before we can identify what a wealth creating investment is, we need to clearly define wealth. Wikipedia defines wealth as “the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions”. This could refer to ownership of stocks, bonds, land, property, precious metals, cash or any other kind of asset.
The basic premise of investing is to acquire assets that will increase in value over time. This increase in value is what will aid in your wealth building goals. Now simply gaining ownership of assets is not going to build wealth on its own. You of course have to be a good steward of those assets. You have to understand how they fit into your life and how to manage them in an effective way.
There are many things you will want to consider before investing, regardless of the market. Is this a safe investment? What is the purpose of the investment…are you looking for short-term returns, additional income or the slow and steady creation of wealth?
Let’s take a look at two of the most common investments for creating wealth. If you have spent even a small amount of time looking into investing, you’ve likely seen these two investments show up on a regular basis.
Real Estate Income Properties
“Investing in real estate is a great idea if you are in it for the long haul, not a quick return. Your best bet is investing in residential properties that produce rental income year-round. Just make sure you understand all of the associated legal fees and you prepare for unexpected costs.” -Bethenny Frankel
If you are investing in real estate property, you will want to consider the health of the current market and its potential to go up or down.
If you are using the property for ongoing income, you’ll need to establish who will manage the property and perform repairs. You’ll want to consider that managing tenants can be a daunting task at times. You’ll need someone to handle applications, evictions, lease violations, rent collections, inventory and a ton of other items.
If this is your first rental property, you may want to consider living in a portion of the residence so you can get your feet wet and reduce costs. You’ll need to make sure a portion of your residence is legally designated to be rented. You’ll also build goodwill over this time period with your lender, which will help if pursuing future loans.
Managing income properties can be a difficult task. But, there are a lot of benefits. In addition to the steady stream of rental income, the most obvious benefit is the potential huge return you could see when you finally sell the property. Another lesser-known benefit is taxes. The amount of taxes you’ll pay on your rental income is significantly lower than what you pay for your full-time job since FICA (Federal Insurance Contributions Act) does not take any money out. As you can see, real estate rental properties can be very promising wealth creating investments.
In this recent article, legendary investor Mark Ford outlines his real estate investing strategy.
- Stick with rental properties.
- Buy only when the prices are right.
- Trade up from starter investments to larger ones.
Read the full article here: Why You Should Invest In Rental Real Estate
It’s no surprise to find stocks on one of our wealth creation lists. After all, investing in stocks is the backbone of any sound portfolio and it’s what we’ve built our brand on for many decades.
Warren Buffett has described investing as “the process of laying out money now to receive more money in the future”. That is very inline with the understanding that wealth creating investments take time to produce returns. But, stocks do on average have a reliable return. The S&P 500 has historically produced around a 10% annual return on investment.
So for example, if you invested just $500 per month over the next 30 years (360 months), the total investment would be $180,000 (360mo x $500). Assuming the average return each year remains around 10%, that $180,000 would produce just under $1 Million.
So no matter what amount you have invested, over time you can see how the stock market can be an amazing wealth generator. And you can perform similar investment calculations using our investment calculator.
With a diversified approach to stock investing in various markets, you can build your wealth by capitalizing on different growth sectors of the economy. That way even if some of your individual stocks take a hit, the sum will be greater than its parts.
Dividend investing is another great avenue to pursue. Oxford Club Income Expert Marc Lichtenfeld spoke about this amazing strategy in this recent Yahoo Finance interview. “It’s the greatest wealth-building tool that I know of in the markets, especially for long-term investors.”
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