Are income-producing assets on your mind when you wake up? Probably not. Same for me as well.
This morning I woke up, went for a run, and lifted weights. I checked my work emails.
I then reviewed my daily summary email from Personal Capital informing me that I received $3.72 in dividends yesterday in my M1 Finance portfolio.
While I don’t consider this a significant amount of income, there is something special. It’s automatic; it’s effortless.
Overall, this portion of my passive-income framework is very small. But remember – what did I do to earn this income yesterday? To some extent, nothing.
Background and Income Producing Assets
This is one of the things I find appealing about income-producing assets.
After initial upfront work or investment, the assets should continue to provide income without additional work.
Of course, not all forms of income-producing assets are entirely passive, nor created equal.
Different asset classes have different advantages and disadvantages, including risk/reward, level of effort/time, and other variables.
Some of these fall into similar asset classes; however, they’re still worth mentioning for consideration.
In no particular order, here are various forms of income-producing assets that can be utilized to create wealth and/or passive income.
1. Banking Products
While interest rates and returns are minimal right now, investors can receive some type of income from holding cash in these accounts:
- Interest Checking Accounts
- Savings Accounts
- Certificates of Deposits (CDs)
- Money Market Accounts
In the updated Balanced Dividends Ecosystem, I generally hold very little cash in these accounts right now.
2. Bonds
Among other types of fixed income securities, various types of bonds exist, including, but not limited to:
- Treasury Bonds
- Municipal Bonds
- Corporate Bonds
For loaning your money to the borrower, these debt instruments, generally, pay a fixed rate of interest, which is repaid over time in the form of coupon payments.
Assuming the borrower doesn’t default, you receive your initial or principal investment back at the time the bond matures.
3. Dividend Stocks
Dividend stocks play a large part in my passive income engine.
Also referred to as value stocks, these types of securities tend to be more mature businesses than their growth counterparts.
In stocks of value companies, profits are paid in the form of cash dividends to investors.
In more growth-oriented companies, profits generally are not paid via dividends as the profits are reinvested back into the business for continued growth.
Over time, growth stocks will generally evolve into a more mature business that might pay out a portion of their profits to investors in the form of dividends.
4. Real Estate Investment Trusts (REITs)
Although publicly-traded or exchanged-traded REITs are technically stocks, they’re a different breed of a dividend stock.
REITs are companies that invest in, manage, and operate real estate assets.
In the US, profits from REITs are not taxed at the corporate level as long as the REITs distribute at least 90% of their taxable income annually to shareholders.
REITs play an important role in my portfolio and overall passive income strategy.
Related: Land(less) Landlording: How and Why We Use REITs
5. Real Estate Crowdfunding
Despite some investments only being available to accredited investors (which I am NOT), a number of platforms offer options to non-accredited investors.
Individual investors can pool their money together via a platform that selects and invests in different types of residential and/or commercial investment properties.
Fundrise is one of those options in the real estate crowdfunding space. I use this as my preferred platform.
Related: Fundrise Passive Income Review: 18-Month Update
6. Other Forms of Real Estate
Aside from REITs and crowdfunded real estate, other forms of investments as rentals can include:
- Single-family homes
- Multi-unit homes
- Commercial properties
I’ve yet to own a single direct piece of real estate myself, but I do find the asset class appealing for various reasons.
Despite the ongoing COVID-19 and quarantine impacts still affecting many places around the world, people still sleep, eat, and work somewhere – perhaps just differently than before.
7. Digital Products
As far as passive income or income-producing assets go, these take almost entirely all upfront work to see any results (if any).
- Websites with Advertisements
- Affiliate Links
- Courses
- eBooks
- Sponsorships
I’m still slowly dipping into this space myself with Balanced Dividends.
These also take time and require you to stay the course.
8. Other Considerations
I’ve yet to dabble in some of these other options, but it’s worth mentioning:
- Peer-to-Peer Lending – examples include loans of various types
- Sharing / Renting Possessions – this could be cars, bikes, your home via Airbnb, etc.
- Private Equity / Venture Capital – with some platforms, individual investors can participate in start-up investing via crowdfunding
- Your Own Business – this is a whole topic unto itself, but clearly a business can be an income-producing asset
At the moment, these don’t play a part in my strategy for income-producing assets.
Remember: Slow and Steady, Getting Income Asset Heavy
There are various market places and options to acquire income-producing assets.
Regardless of the asset, no one knows for certain when the markets will go up or down, or how far and for how long.
If you hear otherwise, be wary.
While you can’t always control or predict these aspects of the market, you can generally have some influence on the following (among others):
- Asset Allocation – depending on your savings or investment objectives, different types of asset classes might be more pertinent to your unique circumstances.
- Expenses – you can’t decide or set the expense ratio of a mutual fund. But you can decide which ones to invest in.
- How Much You Save – admittedly, there are variables that can arguably determine how much you can or can’t save, but you ultimately have the ability to save less or more of your income.
- Your expectations – what you feel and think is influenced every day by countless factors; however, you ultimately decide how you are impacted.
Keep these in mind.
Wrapping It Up
In order to achieve a continuously-growing passive income stream, you have to keep at it. Make small wins.
Gradually, you’ll have a passive income stream that becomes self-sustaining.
If you want faster results? Consider your lifestyle approach.
Regardless, practice patience. And keep creating and acquiring income-producing assets.
Readers, what are your favorite types of income-producing assets? What do you find appealing about each type?
Related:
MoneyMade: Passive Income & Investment Ideas
Balanced Dividends Passive Income & Portfolio
Our favorite free financial tool is Personal Capital. We use it to track our net worth, manage our spending & savings, and to monitor our investments. It’s simple and free to use.
This is one of the best entries you have made over the recent past. Clear, step by step, nice to read the major components and steps to make progress on this important income category. Nicely done.
Thanks for your feedback – appreciate it. I hope people will find it useful.