Creating wealth can seem like a daunting challenge. But having the right income-producing investments in place can be the single most powerful tool to help you build wealth. Now more than ever, with online access to multiple asset classes and disruptive new asset management technologies, investors have more access to capital markets than ever before.
In this article, we’ll discuss the top income producing assets to help you grow wealth. We’ll explain their basic characteristics and the types of investments that fall into each category. Then, we’ll encourage you to do your own independent financial research to determine which investment may be best for your financial needs and goals.
What are Income-Producing Assets?
Income-producing investments are assets that throw off regular income at regular intervals. For example, dividend-yielding stocks, real estate, and bonds can all provide income on a regular basis. Although income-producing investments may be somewhat higher risk than cash and cash equivalents, they may also produce higher returns than other asset classes over the long term.
By including income-producing assets in your portfolio, you may be able to potentially meet your investment goals as well as varying degrees of stability, growth, and income. In the following section, we’ll discuss the top income-producing assets in more detail.
Real Estate
Real estate investments have traditionally been a favored method of wealth creation and remains one of the easiest and more tangible ways to invest your money. With real estate, you effectively invest in a physical asset that generates cash flow over time, is relatively easy to finance, and is affected by factors such as location, timing, and market trends.
Real estate investments typically fall into two primary categories:
-Rental Property – This type of property has long been a popular income-producing asset. You purchase a property, it generates income from rents, and you pay property taxes and cost of maintenance as well as an occasional repair.
-REITs – A Real Estate Investment Trust (REIT) is essentially a fund or company that owns multiple pieces of real estate. By investing in a REIT, you can gain access to multiple real estate holdings without the hassle or expense of managing or purchasing the properties outright.
Bonds
Bonds are typically seen as a relatively low-risk investment and are a core part of an income-producing portfolio. Bonds are essentially loans to governments and corporations, and they pay interest in the form of dividends. They can range from short-term to long-term and several different types of bonds exist including government bonds, corporate bonds, and high-yield bonds.
The primary benefit of bonds as an income-producing asset is that they are relatively low risk and generate a reliable and consistent source of income on a regular basis with known interest rates. Bonds can also be purchased in small denominations with minimal capital investments, which makes them an ideal choice for investors with limited capital.
Stocks
Stocks are a great way to potentially generate higher returns than bonds and other income-producing assets over the long term, but they also come with a higher degree of risk. Stocks, or company stocks, represent a partial ownership in a company and, as such, can potentially result in bigger and longer-term gains when the company performs well.
Investing in stocks and earning consistent dividend income requires selecting the right stocks. Stocks that have been paying regular and increasing dividends are called dividend aristocrats and are generally a lower-risk way to generate income from stocks.
Precious Metals
Precious metals such as gold and silver can be a great way to diversify and potentially protect your portfolio from economic downturns. Gold and silver are considered traditional safe-haven investments and can often act as an effective hedge against stock market volatility and inflation.
Precious metals are typically not directly income-producing, per se; they increase in value based on market and supply and demand dynamics as well as macroeconomic events. Precious metals, then, can be used to preserve and potentially grow wealth, but can provide a potential hedge against stock and bond market downturns.
Conclusion
Ultimately, there is no one-size-fits-all solution to creating wealth. However, with the right combination of income-producing investments and proper asset allocation, you can create an investment strategy that will help meet your financial and investment goals. Each investment has its advantages, disadvantages, and risk factors.
As with any major financial decisions, we encourage investors to do their own independent research and due diligence in order to determine which investment(s) may be best for their investments goals. We also urge investors to speak to a financial advisor or planner before making any major decisions.
By understanding and utilizing the top income-producing assets to help you grow wealth, you can increase your probability of success.