Best Passive Income Generating Assets

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Contributor, Benzinga
June 19, 2023

In the discipline of physics, spitting out numbers without defining the unit of measurement is a surefire mechanism to flunk an examination at best and spark catastrophic failures at worst. In some ways, the consequences are even greater financially because the dollar’s real unit of measurement — purchasing power — has historically fluctuated significantly. That's why it's important to understand the best passive income-generating assets for your portfolio.

What’s more, this fluctuation is rarely in the favor of the general public. To get around the ever-eroding buying power of the greenback, retail investors must also focus on cash flow, which segues into a necessary discussion of the best income-generating assets.

Quick Look at the Best Income-Generating Assets:

  • Real estate
  • Farmland
  • Stocks
  • Savings accounts and CDs
  • Annuities
  • Monetized websites
  • A private business
  • Peer-to-peer lending

The Best Income Generating Assets

Peruse the internet long enough and you’ll eventually come across self-help specialists hawking various programs to “10X” your income or earnings to eventually become a millionaire. But what exactly would that label entail by that time you reach said milestone? According to data provided by the Federal Reserve Bank of St. Louis, the money supply veritably exploded skyward in response to the COVID-19 pandemic.

A lesser-known fact is that in April 2020, the money supply increased 7.3% on a month-to-month sequential basis, far exceeding the previous record of 3% in December 2008, when the U.S. was in the midst of the global financial meltdown. Translation? If your strategy of financial management is merely the modern-day equivalent of stuffing bank notes under the mattress, you are effectively burning real wealth sans smoke.

To navigate the complex vagaries of non-hard-asset-backed fiat currencies, investors nowadays need a mixture of active and passive income; put another way, money-generating activities in your waking hours and accrual of cash while you sleep. Essentially, the best incoming generating assets can help you with the latter, and what’s more, plenty of options exist.

Real Estate

An income generating asset that often receives the label as the king of investments, real estate, has stood the test of time as long as humans have walked the Earth. No matter how advanced a society becomes, irrespective of its paradigm-shattering innovations, physical land (particularly in desirable regions) commands a hefty premium.

Further, people need a roof over their heads, which is why despite the typically large expenditure required to participate in real estate investments, strong due diligence and extensive research may reward you with monthly income in perpetuity.

One of the most critical tools in your analysis will be to assess migration patterns. Basically, you want to concentrate your real estate venture funds not necessarily on locales popular on television and film but rather on where people are moving to. Such dynamics ensure broader investments in your targeted regions, thus amplifying the probability (though not guarantee) of success.

For this purpose, readers should bookmark the Census Flows Mapper under the U.S. Census Bureau website.

Farmland

While the concept on the surface sounds incredibly anachronistic in the digital age, farmland also borrows from the permanently relevant catalyst of real estate ventures. Regardless of the myriad innovations that modern society has delivered — including for healthcare — humans still need to eat and drink.

In a study published by the Massachusetts Institute of Technology, it cited that “environmental resources are a major cause of conflict.” As the Belfer Center for Science and International Affairs confirms, oil is a leading cause of war, with one-quarter to one-half of interstate armed conflicts linking to “black gold.”

Because of rising global populations and the deleterious impact of climate change, future conflicts (political and otherwise) could stem from lack of food and water. Therefore, while farmland investments may be archaic, they are no less relevant since the invention of the discipline.

To be fair, direct acquisition of farmlands can be both expensive and time-consuming. Therefore, investors may want to consider real estate investment trusts (REITs) that focus exclusively on the agricultural sector.

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Stocks

Perhaps the most common and accessible platform that comes to mind when people think about investing, stocks are much more than just vehicles of speculation. True, iconic films like Wall Street give the impression that brokers and traders are taking high-stakes wagers and hoping for the best. While the search for robust capital gains tends to be the main goal for participants, savvy investors can also diversify their portfolio to incorporate income generation.

While flashy ideas dominate the airwaves and the blogosphere, dividend stocks may represent one of the greatest choices for long-term reliable success. Of course, the probability of consistent returns depends on the quality of the underlying business and stability of the industry. However, the advantage with passive income-generating stocks is that you have the chance of double dipping: benefit from capital gains while receiving regular income.

What’s more, dividend stocks present myriad options in and of themselves. You can dial up the risk-reward factor with high-yield investments or focus on the best monthly dividend stocks — a particularly popular choice since real-life obligations tend to impose monthly due dates.

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Savings Accounts and CDs

One of the most conservative but effective means of generating income is through savings accounts and certificates of deposit (CDs). Though they shouldn’t represent the entirety of your investment strategy because of their ultra-low returns relative to alternative financial products, they can become incredibly attractive under periods of great uncertainty and risk — such as geopolitical turmoil.

The benefit to both savings accounts and CDs is trust and stability. Offered by online and traditional banks as well as credit unions and protected under federal law, these products provide one of the most secure places to hold your wealth. Of course, the tradeoff is that your overall return potential is severely limited.

In addition, CDs carry opportunity costs. Since you’re usually dealing with locked rates for a period of months or even years, the money that you protect can end up preventing you from accessing other lucrative prospects should they arise.

To maximize reward potential (as well as the risk profile), you may consider the cryptocurrency alternative of basically lending digital assets to centralized exchanges (CEXs) in return for interest payments. But be warned: such ventures are highly speculative.

Annuities

Issued by an insurance company, an annuity is a certain class of long-term investment that helps mitigate the prospect of retirees outliving their income. Earning interest, annuities provide a guaranteed stream of payments over a contracted period of time in exchange for an initial lump sum offering.

The key benefit to annuities is that they may provide peace of mind, especially in conjunction with other financial strategies. By having a steady flow of income, annuity holders don’t have to worry about where their next check is coming from.

At the same time, you must realize that there’s no such thing as a free lunch. Typically, financial analysts regard annuities as an in-between investment: not great but not terrible. For one thing, policy holders must recognize the fees and expenses involved. For certain individuals, this financial product might not make sense.

Another factor to consider is inflation. Essentially, the monthly annuity payouts represent a fixed income. Therefore, if the purchasing power of the dollar decreases by a certain magnitude, inflation would impose a de facto tax on policy holders.

Monetized Websites

With the proliferation of intuitive consumer-friendly technologies, there’s never been an easier time to get your name out to the public with a powerful brand that resonates with internet users. But all the traffic in the world won’t mean much unless your website is monetized. Fortunately, you have several ways to turn your passion into profits.

First, you can take advantage of services like Alphabet Inc. (NASDAQ: GOOG, NASDAQ: GOOGL), which through its Google Adsense program enables content creators to effectively earn a living. As well, you can engage in affiliate marketing, signing up with companies whose products or services you’d be proud to partner with and advertise their brands.

In addition, you can sell your own products and services through your website, thereby drawing passive income. Should your enterprise truly take off, no limit exists as to how much you can earn.

Of course, the catch with monetized websites is that if it were effortless, everybody would be doing it. Unquestionably, you must be ready to endure many months, if not years of frustrations before making it big.

A Private Business

Naturally, the best income-generating assets are the ones that you create yourself. By starting a business enterprise, you as the entrepreneur determine your goals, working hours and long-term strategies. It’s an incredibly difficult route to pursue but may be the most rewarding.

Further, thanks to modern technologies, you don’t necessarily need to slave over every order that comes into the system. Instead, you can choose a business that is relatively hands-free once the core product is finalized — think a how-to guidebook or a pre-recorded multi-step training seminar. From there, automated services can help accelerate your earnings.

While the private business approach is perhaps the most adventurous means of passive income generation, it’s also one of the riskiest. According to the U.S. Bureau of Labor Statistics, the failure rate for new businesses is roughly 20% after the first year of operation. As time goes, the probability of success diminishes as businesses encounter more challenges to staying afloat.

Therefore, starting a private company is not geared for those who are not ready to handle variable dynamics.

Peer-to Peer Lending

In the housing boom and bust of the mid-2000s decade, a significant catalyst to the volatility stemmed from banks lending money to anyone desiring a mortgage. On the other hand, the current real estate cycle is arguably sitting near the other extreme, with no one but the most qualified receiving loans.

Under this restrictive framework, the concept of peer-to-peer lending may make sense — for both the borrower and lender. Through platforms that match the two counterparties to a loan, borrowers have greater options for receiving funds while individual lenders can enjoy greater returns on their risk than would be possible in traditional financial services.

However, the area that requires significant due diligence is the legal protection arena. Depending on the particular type of peer-to-peer lending and your jurisdiction, you may not qualify for restitution if the borrower defaults.

While this segment is particularly interesting in the age of cryptocurrencies, it also carries significant financial dangers and legal vagaries. Therefore, you must conduct intense research before moving forward.

The Benefits of Income Generating Assets

Among the defining features of the best income-generating investments is the ability to stack productivity on a particular set of assets. For instance, a personal vehicle is just that — a platform to take you from one place to another.

But under an entrepreneurial framework, one vehicle can generate multiple rides, thus being a source of income rather than collecting dust in a parking garage. Moreover, the profits earned from said vehicle can help acquire additional cars, thereby sparking a ride-sharing fleet from an initial cash outlay.

Ultimately, income-generating assets help expand your portfolio without excessive oversight.

  • They’re valuable right now: As ride-sharing platforms like Uber Technologies Inc. (NYSE: UBER) and Lyft Inc. (NASDAQ: LYFT) have proven, income-generating assets have grown in popularity, not because of fantastical notions but because they underline practical business initiatives that people use every day.
  • They can be handed down: Eventually, millennials and Generation Z will realize that time doesn’t stop for a particular generation — even the baby boomers were exactly that, babies. Therefore, generational wealth will likely become a priority. Fortunately, many income-generating assets like private businesses can be handed down to future generations.
  • They’re passive: While developing a passive income stream often requires an initial outlay of cash and effort, currently available technologies enable entrepreneurs to benefit from cash flow without much active management. And in the case of annuities, policyholders can sit back and enjoy the benefits of their contractual programs.
  • You can easily diversify as you make more money: As long as you don’t tie up all your funds into one particular program or endeavor, you have the ability to consider multiple passive income streams. As you accrue cash flow from different sources, you can venture into other opportunities.

Frequently Asked Questions

Q

What assets generate passive income?

A

Multiple assets generate passive income; therefore, the ultimate answer comes down to your preference for convenience versus reward potential. For instance, blue-chip dividend stocks are relatively worry free, but they typically don’t provide as much passive income as a private business, which involves intensive effort and significant risks.

Q

How do you buy assets that generate passive income?

A

Generally speaking, you should focus on utility. For instance, buying a fleet of electric scooters provides micro-mobility options for people who don’t want to fork over money for a personal vehicle.

Q

What do rich people invest in?

A

For over 200 years, wealthy people have put much of thier income in real estate. Real estate, for the most part, will appreciate and along with that appreciation, the asset value increases.

About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.