Everyone wants to have passive income streams, don’t you? This is the ultimate way of building substantial wealth. This is the point where you make money as you sleep. For you to actualize this, you need to invest in assets that produce income.
When you are an investor, income producing assets are your best friend. These assets that produce income come in many forms.
Many invest in income producing assets with the hope of earning passive income.
In as much as no investment is ever really passive, having assets that produce income is a good move towards achieving passive income streams, at least in the future.
Assets that produce passive income have a lot of financial potential, and the risk associated with them differs.
It is, therefore, advisable to choose the assets that are good for your goals and circumstances.
Generating passive income is not a walk in the park. If it was easy, everyone would be doing it every now and then.
It needs an investment of a substantial amount of our time and normally generates little or even no returns for long periods as you commence.
It can take months or even years without a single dollar being generated from passive income investments, making even the most intelligent entrepreneurs end up in total and utmost frustration.
The fact remains that time is much more valuable than money.
Whereas money can be spent and regained through earning, time can only be spent once, and it is gone forever.
The older we grow, the better we understand the value of time and free will, where we are able to freely choose what to do with the time that we have.
Passive Income Streams Begin with Saving
To many of us, it is generally more delightful to spend than to save. Who doesn’t enjoy spending money anyway?
If saving was fun and easy, there would be no stories of people who were earning millions and ended up being broke.
Basically, the main reason for saving is to ensure you have enough money to achieve a certain goal and do as you wish at the time you want and without having to answer to anyone about what you do.
This is a good feeling, right?
If only there was a process or a chart like the 401 (k) by age plan, which gives guidance on the amount one should save and the period one should save so as to attain financial freedom or the individual set goals.
Saving money is, unfortunately, the first main step towards building passive income streams.
Also, knowing how to invest your savings is very important.
When you already have the money saved, there are several passive income ideas to choose from.
You ought to invest your savings on assets that produce income. This is the only time you will see positive results from passive income investments.
There are numerous income producing assets out there, but below I have highlighted some that I think tend to work quite well.
Examples of Assets that produce Income
One of the most sought-after types of investment is, without a doubt, the stock market.
It is a good way to accumulate wealth, either by purchasing individual stocks or by investing through mutual funds or ETFs.
There are companies that pay dividends to stakeholders. The dividends can be reinvested to purchase more shares, or paid out as cash.
Many of these companies that constantly pay out dividends to shareholders are big, well-established brands that have been in existence for a long period of time.
These stocks are mainly less volatile compared to the stock market in general and are mainly regarded as a great long-term buy-and-hold investment.
The good thing with dividend stocks as income producing assets is that dividends can be reinvested or taken out as cash, and dividends are a good long-term investment.
Making a Product from Scratch
One of my favorite ways to earn money is using this method.
It’s not just low-cost, but it’s also easily scalable, which means your earning potential is virtually limitless.
You also don’t need any engineering or construction experience to make your own product. In fact, you probably use goods that you can make every day.
i). Courses available online
These digital information offerings are excellent methods to make money without having to spend a lot of money on overhead.
They do, however, come at a price: your time and energy.
Not only do you have to make the goods, but you also have to make sure that it will sell.
Real Estate Crowdfunding
Online crowdfunding is not only for charitable causes and start-up products anymore.
They are internet platforms that make it possible for investors to take part in large real estate offerings with as little as $5,000.
One can access the site by logging in, viewing the available deals, and investing freely.
Property crowdfunding offers capital to real estate managers who depended on private equity before.
Crowdfunding helps in leveling the playing field for both investors and developers. Crowdfunding portals are just online platforms and are illiquid.
When it comes to availability, real estate crowdfunding is better established in the USA.
In terms of risk profile, property crowdfunding investments have at least equal risks as any real estate deal.
You should, however, not invest unless you are willing to part with your capital for a few years.
This is among those investments where the assets that produce passive income require some time before they can materialize.
Certificate of Deposits (CDs)
Certificate of Deposits (CDs) are like savings accounts, just that your bank won’t allow you to have access to your money in a CD for some time without paying a penalty.
People put their money in CDs because they generally pay more interest rates compared to savings accounts.
CDs are also easy to open as anyone can visit their local bank and open a CD for a specific period of time.
However, in the current low-interest environment, you will be hard-pressed to get a 5-7 year CD that earns more than 2.5% each year.
I will be honest with you, Certificate of Deposits won’t make you rich, but they can offer a simple risk-free way to grow some of your money.
It is among the passive income investments for risk-averse individuals.
Are you looking for a high-risk, high-reward source of income?
Rental units are a great place to start.
Single-family homes, multi-family apartments, and even apartment complexes fall under this category. This might be a steady stream of cash in good times.
However, you must exercise caution during times of economic downturn or substantial job losses.
It’s no stroll in the park to own rental property.
You are responsible for mortgage payments, maintenance, repairs, and leasing like a homeowner.
You can plan for the charges by creating a savings buffer, but you may be taken off guard at times
Repair and maintenance fees are the most common phantom costs. Many homeowners overlook these expenditures and are surprised later with large bills, so it’s crucial to keep them in mind.
While purchasing a home might be intimidating, with sufficient planning and preparation, it can be a financially rewarding experience.
More like the CDs (Certificate of Deposits), bonds are like IOUs. The overriding difference is that instead of giving it to a bank, you lend money to the government or corporations.
Bonds operate just like the CDs. Their features include:
They are very much stable. You are able to know the exact amount you will get back when you invest in a bond.
You are assured of a return. You could even select the amount you want a bond for; this could be one year, two years, five years, or more.
Bonds are smaller in their returns, especially when you compare them with aggressive investments such as stocks.
Bonds are a good investment if you wish to know exactly how much you’re getting back.
Going with the above, do you consider bonds to be the best income producing assets?
Peer to Peer Lending
Peer to Peer lending is a developing “banking” market that works to cut out the big financial institutions from the lending process.
It is a simple idea in that since the beginning of time, consumers have been in debt. They basically bear this debt through credit cards, banks, or other high-interest rate alternatives.
Peer to peer lending allows these customers to go directly to other peers as a source for money.
As an investor, you take up the role of a “bank” by offering your money to a consumer.
In exchange, after lending out your money, the consumer pays you an interest via an SEC-regulated arbitrator such as Lending Club.
With peer to peer lending comes the biggest risk of consumers defaulting on their loans.
Additionally, there have been some few resignations by Lending Club’s CEO recently following a violation of the company’s business practices.
Nevertheless, nothing comes easy, and there can be no gain without risk. This is why most people don’t follow their passive income ideas due to the inherent risk.
One thing you have to know is that there is no great reward that comes without some aspect of risk more so when it comes to investments.
In as much as you are searching for assets that produce income, just know that you will have to take some levels of risk while trying to develop the passive income streams that you desire.
This is an insurance product that can be an income producing asset.
You deposit money with an insurance company, which guarantees a fixed amount of payments to you.
Basically, the company gives your money back with interest over time.
You may, for instance, request monthly payments for 20 years or for all your life.
Annuities are commonly used for retirement planning, are illiquid and cannot be cashed out.
The good thing is that availability is global.
When it comes to the risk profile, annuities do not always come with built-in inflation protection. Therefore, one’s purchasing power can reduce with time.
Additionally, an annuity from a private company may not be honored in case that company goes out of business.
For various reasons, farmland is one of the top income-generating investments.
Farmland, unlike many other investment categories, does not have the same level of volatility.
Because it offers a necessary resource: food, farmland has a minimal association with the stock market.
As a result, demand for farmland has remained largely stable throughout history.
Those who want to profit from this asset can use one of two techniques.
To begin, you can buy property outright and lease it to a farming firm. This technique will necessitate study to guarantee that the land is in the proper location and that the tenant is reliable.
Investing in a REIT or crowdsourcing platform that specializes on farming and farmland is another option.
Keep in mind that you should do your homework on these organizations before investing, as there may be costs that reduce your earning potential.
This is my best example of assets that produce income.
A website can generate money in the following ways:
- Affiliate links
- Banner advertisements
- Your own products
- Display Ads
As much as it can take up to 6 or more months to get income from a website, there is no upper limit of how much you can get.
You can build a website from scratch or buy one from a marketplace like Flippa.
Are you looking to establish passive income streams? Websites offer you a very good opportunity to do this.
Among the assets that produce income, it is one of the best ways out there if you are looking for passive income ideas.
From experience, this one works like a charm.
However, you must be willing to put in the work and time as you commence. Building a website to the point that it is giving you a substantial passive income takes a lot of effort.
But, believe me, it is all worth it. I have done it, and I know you can do it too.
After the initial hard work, you will be earning money even when you are enjoying yourself out there on the beach while you are on vacation.
Savings accounts are good and straightforward assets that produce passive income.
Opening a savings account allows you to earn revenue from the interest your money accrues over time.
The potential income varies depending on the type of account and interest rate.
Basically, investors can expect between .01 and .30 percent returns on the amount put into the savings account.
While low-interest rates may lead to lower returns, as compared to other income generating assets, savings accounts offer the benefit of liquidity.
Investors are often able to access funds on short notice.
There are also high-yield savings accounts, which differ slightly from the traditional ones because of their high-interest rates.
These are, however, often found at online banks, only offering online services, which results in some downside.
In researching savings account options, entrepreneurs should consider the tradeoff between convenience and higher interest rates.
Real Estate Investment Trusts (REITs)
One good way to earn money from rental assets is by investing in real estate investment trusts.
A REIT is a company that owns income producing properties. By investing in a REIT, you receive dividend payments either each month or every three months.
This is one basic way to earn rental property income without bearing with hardships that come with owning physical property.
You can invest in REIT index funds or individual REITs.
How do you rate this among your preferred passive income investments?
Investing in Private Equity
The process of investing in private enterprises, many of which are still in the early phases of development, is known as private equity investing.
This might be a tempting proposition, especially if you’re in the thick of the next big thing in the startup world.
While private equity investing can yield good returns, there are a few things to keep in mind.
The most obvious is that finding the ideal companies to invest in will need some study on your behalf. It is not rare for private enterprises to fail in their initial few years, so exercise caution when considering potential investments.
Private equity investments have a lockup period as well. This is the period during which investors will be unable to access the monies they have invested.
Depending on the company, lockup periods might last anywhere from six months to ten years. If you’re thinking about investing in private equity, keep in mind how a lockup period can affect your finances.
Asset Allocation Basics
The division of an investment portfolio among multiple asset types, such as bonds, stocks, and cash, is known as asset allocation.
The decision on which asset mix to keep in your portfolio is a very personal one.
The asset allocation that is appropriate for you at any particular stage in your life is mostly determined by your time horizon and risk tolerance.
Tolerance to Risk
Risk tolerance refers to your readiness to risk losing some or all of your initial investment in exchange for higher prospective returns.
An aggressive investor, or one who is willing to take on a high level of risk, is more inclined to risk losing money in order to achieve greater outcomes.
A cautious investor, or one who has a limited risk tolerance, prefers investments that will allow him or her to keep their original investment.
Conservative investors preserve a “bird in the hand,” while adventurous investors pursue “two in the bush,” as the classic phrase goes.
Your time horizon refers to how many months, years, or decades you intend to invest to reach a specific financial goal.
Because he or she can wait out slow economic cycles and the inevitable ups and downs of our markets, an investor with a longer time horizon may feel more comfortable taking on a riskier, or more volatile, investment.
Because he or she has a shorter time horizon, an investor saving for a teenager’s college education will likely take on less risk.
Risk vs Reward
Risk and reward are intrinsically linked when it comes to investing.
You’ve probably heard the saying “no pain, no gain”; those phrases come close to encapsulating the risk-reward connection.
Let no one persuade you otherwise.
Every investment entails some level of risk. If you want to invest in securities such as stocks, bonds, or mutual funds, you should be aware that you could lose part or all of your money.
The potential for a higher investment return is the reward for taking on risk.
If you have a long-term financial objective, you are more likely to make money by carefully investing in asset categories with higher risk, such as stocks or bonds, rather than limiting your investments to lower-risk assets, such as cash equivalents.
For short-term financial goals, however, investing primarily in cash assets may be beneficial.
Start Investing Early in Your Life in Assets that Produce Income
I know you have learned how to generate income from investments. More so, on assets that produce passive income.
According to research, starting to invest early in life pays off very well in later years.
You learn to invest by building positive habits around your expenditure.
Opening a savings account to grow your capital is a proper example of the effect of capital on your investment mentality.
The growth of an investment account motivates you to keep saving, and after a period of time, your mindset on the role of money in your life will change.
Growing a portfolio of assets that produce income takes time, but with discipline and commitment, you could end up with a good investment portfolio, earning passive income.
There are numerous passive income streams out there. You just have to find the ones that work for you
Income producing assets are wired to work differently.
The good thing is that passive income investments work differently for different people. You just have to find one or several that work for you.
Always keep in mind that, there are numerous assets that produce income. As I always say, what works for you on matters investment boils down to your personality, capital, and circumstances at hand.