How To Grow Your Wealth With Income Producing Assets
Investing in income producing assets is more important now than ever before. That is because the two worst numbers to depend on as sources of income are “zero” and “one”.
Think about it, anything multiplied by zero is equal to zero. And what happens when you lose a source of income, and it’s the only one you have?
You go back to zero.
That’s the main reason financially independent people utilize income producing assets to ensure a steady flow of revenue from multiple sources.
Therefore, if your goal is to become financially independent, then you are in the right place. On this page, you will discover the meaning of income producing assets, what are the different types of income producing assets you can get into, how to get started investing in these income producing assets, and also give you a “fast-nugget” you can implement now.
If you are ready, let’s get the ball rolling.
Firstly, let’s talk about…
What Are Income Producing Assets?
The answer is simple.
As the name suggests, Investors purchase income producing assets with the sole objective of using them to produce consistent, recurring streams of cash flow over long periods.
One of the main benefits of these assets is that they help you put your money to work to generate more money. Although it’s almost impossible for an asset to generate income entirely passively as there will always be some level of involvement. These assets are attractive because they can generate consistent income over time.
Difference Between Income Producing Assets And Non-producing Assets
There is one major difference between income producing assets and non-producing assets. The difference is that non-producing assets as investments only hold value without generating any further income. An example is non-commercial real estate, although it may be worth a lot of money, it cannot be classified as an income-generating asset.
Since the amount of time you can exchange for income is finite, it makes total sense to invest in assets that produce income without you having to actively work for it.
What are the types of income producing assets you can put your money into?
List Of Income Producing Assets
One of the fundamental principles of investing is “don’t put your eggs in one basket”. That is true for investing in income producing assets too. No doubt, diversification is how you win when investing in this asset class. Diversification works because it protects your income. If one of your investments fails, a few others may perform well.
Below is the list of income producing assets you can invest in. The choice of which you choose to invest in depends on your goal. But you need to have it in mind that each has its pros and cons, therefore as you go through the list of these income-generating assets, try and consider things like the cost of entry, potential returns, level of involvement, and feasibility of the investment opportunity.
1. Savings Accounts: This is one of the easiest and most straightforward to invest in income producing assets. Anyone regardless of age or level of financial literacy can invest in savings accounts.
Despite what you might think about low-interest rates offered on a savings account, you should know that it’s still possible to earn a decent income from this asset.
Earning from saving is a form of passive income, as managing this investment requires a minimal time investment. Although savings brings lower yield compared to stock market, but it is less risky than investing in the stock market. Additionally, savings accounts offer the benefit of liquidity, which means you can access your funds on short notice.
2. Royalties: Royalty is income from intellectual properties or media like books, artwork, copyrights, patents, music, images, and so on.
Investors earn recurring income (a percentage of the customer payment) from these assets each time they are used.
You can also earn royalties on other assets, including oil and gas trusts and the purchasing and releasing of mineral rights on a tract of land. Royalties can be good investments as they can be made to generate steady income that is independent of the financial markets. One downside to investing in royalty is that an unexpected change in people’s taste can impact their income.
3. Private Equity Investing: Private equity investing involves investing in private companies or businesses that don’t have shares trading on any stock exchange.
Investing in private equity is a lot like belonging to a private, members-only club, as opposed to being a part of one that is open to the public.
In order words, investing in companies or business ventures that are not available on any of the open, and public financial markets like the Nasdaq or New York Stock Exchange. Many of these companies or businesses are usually in their early stage.
This can mean a potential for a huge gain, particularly if the startup ends up being a great success. But a few things to note is that it requires research to identify companies that might have this potential. Also, investing in Private Equity Funds is typically more appropriate for experienced investors, as they are not regulated by the Securities and Exchange Commission (SEC).
4. Certificates of Deposits: A certificate of deposit otherwise known as “CD” for short is a financial product offered by financial institutions like banks or credit Unions that allows people to leave their deposits untouched for a certain time, and in return, they will be earning interest on the deposits.
Savings accounts and CDs are similar, with the only difference being that the money deposited in CDs cannot be accessed without penalty until the expiration of the set time.
Typically, CDs always have higher interest rates compared to savings accounts. Also, investing in CDs doesn’t require a minimum amount to begin investing. That makes it one of the more accessible types of assets anyone can invest in.
5. Stocks: Stock is the investment in business equity that allows investors to generate income in several ways. One of these is through dividends. Dividend-yielding stock is an amazing income-producing asset, as it can be a source of steady income to help you reach your retirement goals.
The two types of dividend-yielding stocks are common and preferred. The two have their pros and cons. But both require next to no work in maintenance. You own the stock which is part of a real business, someone else (the management) runs the business on your behalf, and you reap the reward.
It is important to know there is a difference between investing in mutual funds and individual stocks. Mutual funds are investments in different stocks in several companies. It has less risk compared to individual stock because of its diversity. While the individual stock is buying single shares in a company. It has higher yield potential compared to investing in a mutual fund.
6. Peer-to-Peer (P2P) Lending: This is also known as crowd lending. It is a relatively new income-producing asset.
In peer-to-peer lending, you and other lenders act as banks to people looking to borrow money. Similar to a bank loan, the borrower is expected to pay back the principal with interest on it over time.
As with other income producing assets, peer-to-peer lending has risks associated with it. Some borrowers may break the contract obligation by not paying back the money. So try to weigh the pros and cons before you venture into it.
7. Business: This is by far among the best income producing assets. You don’t need to take my word for it. Ask the richest people in the world who make their money through this asset class.
However, before you venture down this route, you need to first decide whether you would like to operate the business or provide know-how and investment capital only. Owning and operating a business can generate higher returns compared to many of the other income-producing assets, but you need to know this will require you to put in a lot of work.
If you go down the route of being an angel investor or passive investor, you may have a sizeable return coming from your investment. But you need to know this is not without risk as most business startups never grow to become the next Apple or Amazon, fact is a large percentage of them never make it beyond the garage. Lastly, investing in business requires time commitment as there is a lot of due diligence you need to put into it.
8. Farmland: This unlike many investment classes doesn’t experience high volatility. That is why investing in farmland is one of the best income-producing assets.
Also, it has a low correlation with the stock market because it provides food, which is a necessary resource. That is why the demand for farmland has remained relatively consistent throughout history.
There are two approaches you can take to make money from this income-producing asset. The first approach is to purchase land directly and lease it to a company to use for farming. The other approach is to invest in a crowdsourcing platform or REIT that focuses on farmland.
You should know that whichever approach you take between the two will require you to do some research. In the first case, ensure the land is in the right place and have a consistent renter. In the second case, know the fees associated so that you can determine the income potential.
9. Real Estate Investing: There are many ways to generate income from real estate investing. One of the common ones is with rental properties. This simply involves purchasing a property like a home and then renting it out to people who pay rental income over the period they use the property.
As mentioned above, there are different types of real estate to consider for investing. The property type can be based on the number of units available, and some may seem more attractive than others, depending on your income goal.
Rental properties offer the opportunity for anyone to continue generating income for a long period and can be a way for investors to increase their wealth without investing huge capital upfront. What is even more attractive is that by hiring a good property manager, you can run rental property investments without a high level of involvement from you.
And if you get intimidated by the prospect of having to own properties but still want to generate income from real estate, then you should consider investing in a REIT.
Real Estate Investment Trust operates similarly to investing in stocks, but you are only investing in real estate-oriented companies. These companies can specialize in office buildings, storage units, parking garages, and so on. REIT can be a good income-producing asset too. The beauty of it is that it spares you the headache of coming up with huge up-front capital and the setup required for investing in real estate.
10. Websites: This can continue to generate revenue for a long time, as long as it is well maintained.
The beautiful thing is the cost of entry for investing in this income producing asset is relatively low compared to some of the other asset classes we have discussed.
One way to make money through this is by purchasing domains related to an upcoming trend or popular topic and then later selling it to someone else. Another approach is to take time to build the website by creating content. Then use paid ads, affiliates, or sponsorship to monetize the website once it starts generating a healthy amount of traffic.
11. Money Market Accounts: Money market accounts like other income producing assets pay dividends that are made from investing in short-maturity, low-risk debt securities.
The account can be opened with banks or credit unions. It has variable interest rates based on market fluctuation, i.e. you can earn more or less depending on the market. Most time funds in money market accounts are extremely liquid, and you can request to close your account at any time.
12. Annuities: These are sold as contracts by insurance companies, and the said insurance company with continue to make regular payments to you for a set period of time or in other cases for life. Annuities are lump sum investments in an insurance company that gets paid back to the investor with a return on it over a period of time. This is common among retirees, as the annuity funds can only be withdrawn after a certain age (usually 59.5 years of age.)
How To Start Investing In These Assets.
No matter what your current situation is, you can start building wealth by investing in income-producing assets.
There are many ways you can start investing in these assets. Most people usually start investing by redirecting income from their job or existing savings into these income producing assets. The goal here is to convert their active income to passive income, so they can one day be earning without actively working for it.
Another option is to raise capital through investors, especially when you are starting with minimal capital. This might seem intimidating for some people, but you need to know this can fast-track reaching your goal.
If raising funds is not the route you’ll like to take, then you can consider starting with those assets with low cost of entry, for example, savings, and CDs.
Fast Nuggets to implement now
Finding the right combination of income producing assets to achieve your financial goals will be entirely up to you, but by doing your due diligence, you can be better prepared to make smart investment decisions.
One important thing is not to forget this truism savvy investors know about investing, “never put your eggs in one basket.”
Diversification is the key. That is why it is one of the core principles of investing.
The fact is, the economy can be unpredictable, so it is important to hedge yourself against any form of undesired surprises. That is why diversification is very important, as it protects you even if some of your investments fail.
Lastly, you should know that getting to your financial freedom goal requires dedication.
So choose your preferred vehicle among the different income producing assets, then try to put in the right amount of effort required. I’m very sure you will surprise even yourself with how easily and fast you reach your goal of financial independence.
I’m Adebayo Ridwan, an Electrical and Electronics Engineering graduate from the University of Ilorin.
I discovered my passion for writing, during my first year in Unilorin. Since then, I’ve been dedicated to mastering the art…
and sharing practical information to help people solve problems.