What are the Best Income Producing Assets?
- March 1, 2017
- Posted by: Andrew Rombach
- Category: Personal Finance
If you are serious about building wealth, you need to add some income producing assets to your portfolio.
To put it simply, income producing assets refer to the intangible or tangible rights to something that provides you with money.
These assets will continue to bring in money for as long as you have them. You will often get money monthly or every few months, and the income source is typically stable.
That means you can always count on the money coming in without having to do any, or almost no, work at all.
That is the simple definition. Now let’s look a little bit deeper by going over various examples, along with their income potential, to help you determine which assets to add to your portfolio. Keep in mind that you can also add more than one if you want to have various streams of revenue coming into your account.
Invest with a Robo-Advisor
One of the easiest ways to make money passively is to invest it online with a robo-advisor. Since your investments will automatically be managed via algorithms, it requires no work on your end. In addition, most have very reasonable fees and require little setup.
Robo-advisors have grown in popularity recently with many new companies jumping into the industry. This increased competition has led to better offerings, lower fees, and better perks.
At LendEDU, we have reviewed the top robo-advisors so consumers who are interested can find their perfect fit. You can see our favorites below:
Another great way to generate passive income is through investing in peer-to-peer lending sites. In short, you can invest in loans given to consumers, then earn interest when they are repaid.
Though these investments are sometimes seen as risky, since consumers may not repay the loans, many of the sites make it easy to diversify your portfolio and allow you to invest small amounts. If you are worried about the borrower you invested in defaulting on their loan, you can opt to invest small amounts in many different loans.
Like robo-advisors, we have also reviewed the top peer-to-peer lending sites to save potential investors the hassle. You can see the most important details of the best peer-to-peer lending sites below:
on LendingClub's secure website
Types of Loans
Personal, Auto, Business
$1,000 - $500k
Increments of $25
4.95% - 7.10%
# Eligible States
Open a High-Interest Savings Account
Though they may not offer the potential returns as robo-advisors and peer-to-peer lending sites offer, high interest savings accounts are a great, safe way to passively grow income.
High-interest savings accounts have higher interest rates than your run-of-the-mill checking and savings accounts. With more and more jumps getting into the scene with the emergence of online banks, competition has never been higher. This has led to better interest rates and benefits offered.
To help consumers sort out these rates and benefits, we have reviewed the best high-interest savings accounts. You can find out top picks below:
Owning rental property is one of the best ways to make money with income producing assets. You can put some of your own money down and then get the rest from a bank. Put a reliable tenant into the property and you can start to earn some serious money. It is easy to find reliable tenants by performing credit checks and checking references.
The amount you make depends on various factors, including the market, condition of the home, and repair costs. It also depends on how much you charge each month. Most investors charge between 0.8% and 1.1% of the property’s market value. The more your home is worth, the more you will make.
If you decide to invest in rental property, make sure you keep money in a fund that you can use for repairs. Keep in mind you cannot use the tenant’s security deposit for repairs, unless the tenant damages the property.
If you want some reliable income producing assets, consider dividend stocks. Dividend stocks offer steady payments, and you can always reinvest to get more shares. These are blue chip stocks that come from reliable companies, so there isn’t as much concern of the market tanking. Additionally, you can expect the companies to raise their dividends occasionally, meaning more money for you.
The amount of money you make depends on the stocks you choose. For instance, some dividend stocks have a current dividend yield of close to 22%, netting investors a nice profit. However, investors often choose to go with a more secure choice. Stocks that have consecutive years of dividend increases and a healthy current yield are a good bet. That type of security is very valuable for investors.
Bonds are another great option for a safe and secure investment. Issued by both companies and governments, these bonds are basically loans. You lend the company or government the money, and it pays interest and returns your principle. Bonds consist of a face value, which is commonly known as a par value, and an interest rate. The interest is known as a coupon.
For example, if you purchase a $1,000 bond and it has a 7% interest rate for a year, it will have a $70 coupon. That means you will make $70 once the year is up.
You can make out even better if you buy the bond at a discount. Let’s say that you get a $1,000 bond for $900. The interest is calculated on the par value instead of the actual amount you spend. That means if the bond has a 7% interest rate, the rate is figured by the par value. You will still get $70 in earnings, meaning you will actually make 7.8% interest.
The interest rates vary for bonds, but don’t expect them to get too high. The lower the interest rate, the less risky a bond is considered to be.
Certificates of Deposit
If you’re just starting out as an investor, you might want to put your money into Certificates of Deposit (CDs). These are great for first time investors because they don’t have income or net worth requirements. You will need to make a minimum deposit, but it is typically affordable.
CD accounts generally provide low yields, but you can get better rates if you go with a credit union or smaller bank. You might earn a 0.10% API at a big institution, but get over 2% with a small bank. These rates fluctuate based on the current interest rate environment.
If you want to invest like the wealthy, you need income producing assets. Don’t put all of your apples in one barrel, either. Add various income producing assets to the mix in order to earn the most money possible.