Top 5 Income Producing Assets Ranked
Passive income is all the rage these days. Don’t want to work? No problem. Just spend a little time building a few residual income streams and you can retire rich on the beach in no time! Of course, it’s not quite that simple. None of the following income generating opportunities are true set-it-and-forget-it money making opportunities in the true passive income tradition, but some of them do come close.
As an aside, I love these “best of” articles. Why? Because since it’s my site and my opinion, “because I said so” is actually a reasonable argument. Today, I will be ranking the top 5 income producing assets ranked in descending order.
The 5 Best Income Producing Assets
5.) Real Estate
When most people think of passive income, they traditionally think about real estate. Rental properties, the theory goes, are a great source of passive income since the tenants pay you to own real estate! Oh, if only that were true. In reality, real estate isn’t all that passive as a general rule. You may not end up routinely fixing a clogged toilet at 4 in the morning (then again, you might) but you will almost certainly have to perform semi-regular maintenance on your properties. What’s more, you’ll have to fill vacancies, paint and perform repairs between tenants, and even hunt down the occasional late rent check. That’s not to say real estate investing can’t be immensely rewarding; it can. That the majority of American millionaires supposedly got that way via real estate is no fluke. It’s just that, if making money without working for it is your goal, real estate probably isn’t your cup of tea. Note: REIT mutual funds are an exception to this rule and I think everybody should own one.
4.) Blogging Income And Internet Marketing
Plenty of people are obsessed with making money on the internet but let me tell you, it ain’t easy. I’ve been at this about 5 years now (only seriously for 2 years, though) and I’m still not at the point of generating a full-time livable income from it, although I’m getting close. That said, the internet is still young enough that online money making opportunities are not difficult to find if you know how to find them. Don’t expect to retire this time next year, but if you work intelligently and consistently at it for 4 or 5 years I see no reason why you couldn’t easily make 6 figures online. For an older example of how I have made money online in the past, check out my posts on creating online passive income and my niche mini site case study. I no longer use this method myself because I have since found more lucrative methods, but it does work and is a great way for beginners to learn the ropes.
3.) Bonds And Bank Certificates Of Deposit
It would be difficult to think of a more boring investment than a high yield CD, but when it comes to your money, the less excitement the better. Short-term investment-grade bonds and FDIC-insured CD’s are safe, convenient, and as close to a sure thing as you’re likely to get these days (one worries even about treasuries lately) but their downsides should be obvious: relatively low yields and no inflation protection. If you invest $1,000 in a 5 year CD, you will get back exactly $1,000 in 5 years. Meanwhile, the cost of living will have gone up, maybe significantly. That’s why I really prefer:
2.) Income-Oriented Mutual Funds
There are literally hundreds of decent income-focused mutual funds out there (most balanced funds qualify). Vanguard Wellesley Income, Vanguard Equity Income, even Vanguard STAR Fund are just a few of the best income producing mutual funds I recommend (because of their low cost, of course). The really cool thing about these income funds is that if they contain stocks, they have built-in inflation protection. Since corporate earnings tend to rise over time with inflation, so to do corporate dividends. Thus, provided you don’t spend down principal, you should get a modest raise most years. Can’t beat that.
And The Best Income Producing Asset Is…
1.) Immediate Annuities!
Okay, this one is totally a cop-out and they aren’t for everybody, but you can’t deny immediate annuities are among the best income producing investments around once you’ve reached retirement age. Why? Because you get a guaranteed monthly income stream and what’s more, you get to know what it will be before buying. Yields on immediate annuities are usually significantly higher than bonds, CDs, or practically any other income-producing asset. The downsides are that you have to pay extra for inflation protection and are exposed to non-trivial financial risk if your insurance company goes bankrupt. I would advise anyone considering an immediate annuity to split their money amongst at least 2 or 3 different insurers to hedge that risk and remain below your state’s annuity protection limits since most states have an FDIC-like guarantee for income annuity products: find out what yours is.