Assets which produce income

Regardless of what stock strategy you choose, having some exposure to this asset class is the most important part. Personally, I own U.

Is this the optimal way to invest in stocks? Probably not. But it works for me and should do well over the long run. However, despite all the praise that I have just given to stocks, they are not for the faint of heart.

As I once stated :. It is this highly volatile nature of stocks that makes them difficult to hold during turbulent times.

But what makes these declines especially troubling is when they are based on shifting sentiment rather than changes in underlying fundamentals. The best way to combat such emotional volatility is to focus on the long-term.

While this does not guarantee returns i. Bonds are merely loans made from an investor to a borrower to be paid back over a certain period of time i.

Many bonds require periodic payments i. The borrower can either be an individual, a business, or a government. Most of the time when investors discuss bonds they are referring to U. Treasury bonds, or bonds where the U. You can find the interest rates paid on U. Treasury bonds for each of these terms online here.

In addition to U. Though these kinds of bonds generally pay more interest than U. Treasury bonds, they also tend to be riskier. Why are they riskier than U. Treasury bonds? Because the U. Treasury is the most creditworthy borrower on the planet.

Since the U. This is not necessarily true when it comes to foreign governments, local governments, or corporations. This is why I tend to only invest in U. Treasury bonds. I understand that with current yields as low as they are i.

In fact, I recommend bonds as an income-producing asset because of the other properties that they exhibit. In particular, bonds:. Unlike stocks and other risky assets, bonds have lower volatility which makes them more consistent and dependable even during the toughest of times.

As I recently illustrated , those portfolios with more bonds i. Treasuries performed better during the coronavirus crash:. More importantly, those that had bonds and were able to rebalance during the crash saw an even bigger benefit during the recovery that followed. Because of my Treasury bonds I was lucky enough to rebalance on the day of the recent market bottom.

Yes, this timing was luck, but owning bonds in the first place was not. So how can you buy bonds? If you think that owning individual bonds is somehow different from owning bonds in a fund, please read this and this to convince yourself otherwise. Regardless of the kinds of bonds you consider buying, they can play an important role in your portfolio beyond providing growth.

As the old saying goes:. Owning an investment property can be great because not only does it provide you with a place to relax, but it can also earn you extra income. If you manage the property correctly, you will have other people i. Additionally, if you were able to borrow money when acquiring the property, your return will be a bit higher due to the added leverage. While doing all of this, you also have to deal with the added stress of having another liability on your balance sheet.

When this goes right, owning an investment property can be wonderful, especially when you have borrowed most of the money to finance the purchase. However, when things go wrong, like they did in , they can go really wrong. If you like the idea of owning real estate, but hate the idea of managing it yourself, then the real estate investment trust REIT might be right for you. A REIT is a business that owns and manages real estate properties and pays out the income from those properties to its owners.

This requirement makes REITs one of the most reliable income-producing assets on the market. However, not all REITs are the same. There are residential REITs that can own apartment buildings, student housing, manufactured homes, and single-family homes, and commercial REITs that can own office buildings, warehouses, retail spaces, and other commercial properties. What they are: Dividend-paying stocks are issued by companies that make cash payments per share, generally quarterly, based on how well the company is doing.

The two main types of dividend stocks are called common and preferred. How they work: Common stock dividends are set by the company's board of directors each quarter. You won't know the amount or even if there will be a dividend until the board decides. Preferred stock dividends are more regular: pre-determined, fixed payments over a specified period of time.

Also, preferred stockholders their dividends before common stock shareholders get theirs. Although common stock dividends are riskier, you stand to gain more. Preferred stock dividends are less risky, but generally lower. What to know: The most consistent, good dividend-payers tend to be from blue-chip stocks — that is, those of large, well-established corporations.

How to tell if a dividend is a good one? Look not just at the dollar amount, but at the dividend yield : that is, the company's annual dividend divided by its stock price and multiplied by It's often indicated on a stock's online listing.

That ratio indicates a decent payout relative to a company's earnings and market valuation and helps you avoid companies that may be borrowing excessively to inflate their dividends. What they are: Bonds are loans to the government or a company. Your income from bonds comes in the form of fixed-interest payments. As the bondholder lender you receive a fixed amount of interest income on a regular schedule. When the loan term ends, you receive your original investment back.

How they work: The rate of interest you receive on a bond depends on the length of its term — the longer, the higher — the creditworthiness of the borrower, and the conditions of the market. There are three main types of bonds:. What to know: Bond prices tend to go up when the stock market goes down, making bonds a good tool to balance risk from equities, as well as an income source.

What they are: Although it can and does appreciate, real estate often provides a solid cash flow as well. The income derives from rents paid by tenants of residential, industrial, or commercial properties, and sometimes from mortgage interest on the properties as well. The dividends can vary in both amount and frequency.

REITs invest in a variety of projects and are considered ongoing, long-term investments. A real estate limited partnership RELP lets you pool your money with other investors to buy or develop real estate properties in a private i. Formed to operate for over a period of years, a RELP offers excellent dividend payments annually, though the big money comes via distributions when the projects are complete and sold towards the end. What they are: Money market fun ds MMFs are a special type of fixed income mutual funds that invest in short-maturity, low-risk debt securities that pay dividends like most other income-producing investments.

How they work: MMFs are low- volatility investments that may be taxable or tax-exempt, depending on the types of securities held. Any excess is distributed as dividends.

What to know: Investors like the NAV standard because it forces fund managers to make regular dividend payments to investors, which provides that steady cash flow income investors prize. What they are: Banks also sell income-producing products that many investors include in their portfolios because of their relatively low risk.

One of the most common is certificates of deposit CDs. How they work: Certificates of deposit CDs are a type of savings account that come with terms ranging from six months to five years.

The longer the amount of time you must keep your money in the CD, the higher the interest rate. What to know: If you want income interest from your CDs, most banks will let you take it out as it is earned at its fixed rate.

Your principal, however, is usually locked in for the duration of the CD. What they are: Money market accounts , sometimes called money market savings accounts, are another common bank product. They pay higher interest than regular savings accounts, but have more restrictions and often require a higher initial balance to get the best interest rate.

How they work: You can make withdrawals including interest from your money market account up to six times a month. What to know: Money market accounts and CDs too are not considered major income investments, but rather savings vehicles. Still, they do earn some return, and of course, are highly liquid: Access is as close as the nearest bank branch.

And both are FDIC-insured. What they are: Annuities are contracts sold by insurance companies that make regular payments to you for a set period or for life. You invest an initial sum, then the money is repaid to you in periodic installments, a process known as annuitization.

The payments typically consist of both principal and interest. The risk depends on the underlying stability of the insurance company and the type of annuity : Fixed is the least risky and variable the most. What to know: Compared to other types of investments, annuities are often criticized for high fees and expenses.

Income investing is often associated with older, often retired investors: Common financial wisdom often has portfolios shifting from growth to income as their owners age. Still, all investors can and should include some income producers in their portfolio — as a counterbalance to aggressive growth assets, if nothing else. Generally speaking, the more risk you are willing to take or the longer you are willing to let your money work, the higher rate of return you will receive.

That said, the main purpose of income investing is to produce cash flow with a reasonable amount of risk. Income-producing stocks, bonds, and other securities are meant to be the stable foundation of your portfolio. And you can always diversify your risk further by investing in income-oriented exchange-traded funds ETFs and mutual funds. With the right research and planning, anyone can get started investing today. Whether you are fresh out of college or are approaching retirement, there are opportunities to build wealth with income-generating assets and achieve financial freedom.

Keep reading for our list of assets that generate income, and learn how to get started today. Investing in an income-generating asset involves paying money now to acquire an asset or account with the intent of generating more income in the future. These assets are attractive because of their ability to generate consistent, stable income over time. While it is rare to find investments that are entirely passive, income-generating assets often require medium- to low levels of involvement.

As a result, the time frame and potential returns will vary depending on the type of investment chosen. Nathan, the Marketing Director at DiggityMarketing, acknowledges that income-generating assets can take many forms.

It is important to differentiate income-generating assets from non-productive assets. A non-productive asset refers to investments that hold value without generating any further income. For example, while a car may be worth a lot of money, it is not classified as an income-generating asset.

Even if this asset appreciates in value because it is not creating cash flow, it is not considered an income-generating asset. Some examples of income-producing assets include real estate properties and real estate investment trusts REITs. Register to attend our FREE online real estate class and find out how real estate investing can put you on the path toward financial independence.

The most common way to start investing in income-producing assets is to rely on income from a primary job or money from existing savings. Investors can choose to redirect those funds towards an investment that will generate passive income over time.

Aspiring investors should take time to do some financial planning and determine the level of funds they will be working with and how to best devote them to potential income-generating assets. If you are starting with minimal capital, there are still options for getting started. Be sure to check out guides on how to raise capital , and get more familiar with fundraising for investments.

Many investors will take a more active role at the beginning of their careers to set a strong foundation for future income-generating assets. If the idea of raising capital sounds intimidating at the moment, some examples require low levels of money to get started. For example, savings accounts and CDs often do not require minimum net worths from investors. One of the most important things to remember as you get started investing in income-generating assets is the importance of a diverse portfolio.

The most financially savvy investors often have investments across different platforms. A diverse portfolio can serve multiple purposes, but perhaps most importantly, it can offer a degree of protection if one of your investments is not profitable. Diversifying your investments can also stagger your income and help you receive regular revenue across different sources. There are several types of income-generating assets ranging from real estate, stocks, savings accounts, certificates of deposit to private equity.

Each of these will have its own pros and cons, which are important to keep in mind as you consider which will be best for your portfolio. As you review our income-generating assets list, try and consider the cost of entry, potential returns, level of involvement, and feasibility of each investment opportunity. Finding the right combination of assets to achieve your financial goals will be entirely up to you, but by doing your research you can help ensure you are prepared to make smart investment decisions.

Here are some of the most common income generating assets to be aware of:. Several real estate investing strategies can generate consistent revenue; however, one of the most common is investing in rental properties. This consists of purchasing a home or multi-unit property and marketing to tenants to earn rental income over time.

Rental properties offer the opportunity to generate steady rental income over long periods of time. By hiring the right property manager, you can ensure your rental property runs smoothly—without a high level of involvement on your behalf.

One of the most attractive perks of investing in rental real estate is enabling investors to increase their wealth without significant capital upfront. Additionally, real estate investing can provide the opportunity to expand your portfolio more rapidly when compared to other investing opportunities. For example, you could purchase a single-family home to begin renting out. You could then use the income generated from this property to purchase another rental property, thus adding another income-generating asset and expanding your investment portfolio.

There are a few different types of real estate to consider, ranging from a single-family home to an apartment complex. The property type is based on the number of units available, and depending on your investing goals, some may seem more attractive than others. For example, it is common for first-time investors to opt for duplexes, triplexes, or quads and live in a unit while renting the others.

However, larger properties meaning those with more units typically signal larger amounts of capital required to get started and increased levels of involvement. If you are intimidated by the prospect of owning properties but still find yourself interested in real estate, REITs can be an attractive income-generating asset.

Real estate investment trusts are similar to investing in stocks, but they are specifically real estate-oriented companies. Real estate investment trusts can specialize in apartment complexes, office buildings, storage units, or parking garages.

Entrepreneurs who choose to invest in REITs will be able to work in the real estate industry without walking through the up-front costs and set up of acquiring properties. Read our guide on REITs to learn more about how to get started. Stocks refer to investments in business equity and allow investors to generate income through several means, not the least of which are dividends. More importantly, dividends are rewarded over time and do not require much capital to benefit from.

It is important to know the difference between investing in individual stocks and investing in mutual funds. Individual stocks represent the opportunity to buy single shares in a company to test out the industry. On the other hand, investing in mutual funds involves investing in different stocks across several companies.

Because mutual funds are more diverse than individual stocks, they provide less risk; however, individual stocks can yield potentially higher results.

If you are interested in investing in stocks, be sure to familiarize yourself with the stock market and get a better idea of the types of companies you may want to invest in. Among the best income-producing assets is large-cap dividend investing. Dividend stocks derive from companies that are well past their growth state, meaning they exhibit much more stability than younger, growing companies.