10 Best Income Producing Assets to Invest in [2023]
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If you invest in income generating assets, you want to generate some type of stable income over time. This can be monthly recurring linear income, one-off income, or variable income. The type of how it’s generated plays and less important role at first, but if you think about it, passive income is always more comfortable than investing in income generating assets that require active management.
In general, an asset you invest in can either generate an income or not, independently of how much you invested. If you buy a multi-million-time produced car, and drive it for ten years, then it’s unlikely that it will generate an income, even if you invested a reasonable amount when buying it.
On the other hand, if you bought a rare Porsche 991 Club Coupe (13 units produced), things might look different, and the investment may have already appreciated in value even if the car is old. As this example demonstrates, it’s not the total amount of the investment that makes the difference, but the asset by itself that either generates an income or not.
That being said, now let’s take a closer look at the 10 best income producing assets to invest in.
Income Generating Assets – Top 10
1. Stocks
As an investor, investing in stocks is the go-to idea for generating income. If you start investing $681.31 per year at the age of 20, you are a millionaire at 65. This sounds remarkable, right? The power of compound interest and dollar-cost averaging makes it possible to grow a stock portfolio that fast.
Sure, the 11.56% average return of the past 12 years might not be the average of the upcoming 12 years, but we just don’t know. Independently of the average stock market performance, in fact, as earlier you start investing, the more the return on investment – at least as long the generated returns are positive.
To archive those goals, you either consider buying the best stocks and add them to the portfolio one by the other, or you buy great-performing exchange-traded funds, which automatically take care of diversification.
2. Dividend Paying Stocks
Stocks again, why is that? Well, most best-performing stocks listed on U.S. stock exchanges don’t pay dividends, which results in an interesting situation. A stock that does not pay dividends never trades ex-dividend, which results in remaining stock prices on a high level. On the other side, those companies who pay dividends trade ex-dividend on a lower price level every quarter after the dividend is paid.
If you use a stock screener to find the best-performing stocks, you only see those whose price performed the best, while the paid dividend is not considered in the calculation of stock price performance.
Example:
- Stock XYZ pays no dividend, and its stock price goes from $100 to $150 in 3 years.
- Stock ZXY pays $5 dividend per quarter, and the stock price goes from $100 to $110 in 3 years.
Now your investment analysis tool indicates that stock XYZ performed better, which is true if you don’t consider the dividend. So you might tend to buy stock XYZ but hold on, that might be a mistake.
If you integrate the dividend payment into the calculation, you get another picture.
Stock XYZ generated $50 in profits per share in 3 years. Based on the initial payment per share of $100, it is a 50% return over 3 years.
Stock ZXY generated $10 in profits per share in 3 years, but it also paid 3 years 4 times per year $5 in dividends ($60 in dividends in total). So the profit is $10 plus $60 (3 years x 4 quarters x $5), so $70, which is a 70% return over 3 years, which makes it the better investment.
Investing in dividend paying stocks can be a great alternative to buying best performing stocks purely based on stock price return.
3. Savings Accounts
Yepp, they are back. Savings accounts are right in third place, right behind investing in the stock market. Why is that? Because you get a whopping 4% or more for absolutely doing nothing but just depositing money in your savings account and waiting for the compound interest to come to your pocket.
Who would have thought that 5 years ago?
Right now, stocks are near their all-time highs again, and they might not generate the return anymore with still steadily increasing inflation numbers and continuously growing interest rates. On July 26, 2019, the FED raised interest rates for the 19th time in less than 2 years and who knows, we might see 10 more increases to come.
Instead of parking your money on a 0% investment, you should consider at least temporarily parking the money in a savings account to build wealth passively.
4. Certificates of Deposits
Certificates of deposits fall in the same category as savings accounts and passively generate income by simply wiring money from your bank account to an investment in certificates of deposits (CDs).
Those CDs typically generate even higher returns than savings accounts, but there are some risks you should be aware of. First of all, nothing is for free, and if someone pays you a higher interest than for depositing money in a savings account, you should be focused and take a closer look.
CDs require you to set amounts of time your money will be invested in the certificate of deposits. In return for having your money there for a minimum time, you get a higher interest rate, and the return per money invested will be higher than on the savings account at the time you start your CD investment.
However, you need to understand that if you withdraw your money before the time you committed to keep your money in the CD, you have to pay a penalty which ends up losing some of your returns. In addition, you never know if the savings account returns will increase further, and you might get 1% percentage points more on the savings account 3 months after you committed to holding your money in the CD for 12 months.
5. Real Estate Assets
Investing in rental properties is a great way to generate consistent returns if you invest in the right property. The ratio between income after tax and investment needs to be on a comfortable level, and the return should be higher than the percentage of earnings you get in interest.
Let’s say interest rates are at 4%, and you have $1,000,000 to invest. Your absolute passive return would be $40,000, and the return your property generates should be similar or higher. Sure, diversification is also a crucial point, so even if the real estate property generates only a 3% return over 30 years, it’s still a viable option.
But you get the point, no matter what you invest in to generate income, wealth and returns, you should always aim for the best possible income. For real estate investments, you need high upfront investments, and with current interest rates, business ideas like house flipping are not that profitable anymore.
Therefore real estate has a secure place in the list of the best income producing assets, but right now, there are simply other investments with better returns out there.
6. Domain Flipping
What house flipping is for real-estate investors is domain flipping for internet-focused businesses. Imagine you build a house or do a renovation. To do that, you buy land and build a house on it or renovate an older house. In both cases, you sell it later for a profit (at least, that’s the intention).
With domain flipping, it is similar. A domain is a website name. This website is your land and either empty, or your land has a house on it, but this time in the form of website content. Domain flippers either focus on buying domains of high value for a low price and flip it by selling just the domain name for a higher price or adding value to the investment.
Once you have a domain, you can install a content management system like WordPress and upload content. Now you have generated an added value to the domain and can sell a full website with content to someone else. I’ve seen people buy domains for $100, add some content and sell it for 5-digit revenues just a few months later. Imagine what type of return that is, but for sure, it is also worth considering if this type of business is of interest to you.
7. Peer-to-Peer Lending
Who gives a private person money if their official credit rating is not in such good shape? Private investors! Let’s say your friend asks you to borrow him $500 for 12 months, and he wants to pay back $550 after those 12 months. Not bad for 1 year or a loan, right?
And that’s where peer-to-peer lending platforms come into play. Here, people who need money can apply for a loan. They describe in detail what they want to do with the money, and you can offer them a loan based on your downpayment terms. If the borrower accepts, he gets your loan and borrows money from you. In exchange, he pays back the loan plus interest.
However, various P2P businesses got insolvent, and while the potential income with interest rates of 10% and higher is tempting, it can always only be a side investment to build wealth on a diversified level.
The most important part is to read exactly what the borrower needs the money for and how he can pay back the loan. Look in detail at the numbers and act like a bank.
8. Buying a Company
A business can be started from scratch. You start at zero, develop a business idea and plan, clarify financing details, hire people, analyze company names, develop products to sell for income, build a marketing department, educate your people, and invest many years of your life to build your brand.
Alternatively, you take the shortcut and buy an existing company with existing products, already consistent income streams, a great team of employees, and steady revenue based on analyzed finance details.
If this sounds like a viable option, buying a company can be a great shortcut to making money with company buying. If you buy it, it does not mean that you have to sell it again, but you can. That’s company flipping, then. However, buying a company is a really complex undergo and definitely not for beginners.
You need a proper understanding of how to evaluate the value of a company before buying it. It is best if you have a network of experienced people who can help you to archive your goals more quickly.
9. Farmland
Not everybody is happy working in an office, with other people, in big teams or in the product lane. Maybe you are more of a nature-focused investor and want to live on the wide land, generating income by buying farmland, crow cereals and corn, peppers, or even breed sheep.
If this sounds like you, it’s a great opportunity since farmland is a great income-producing asset when used properly. Before you buy farmland, you have to come up with a business plan and calculate what’s needed to generate an income stream. Yet, it comes close to starting a business where you have to work a lot.
It can be much more rewarding if you buy farmland that has a high chance of becoming building land since you can keep the farmland you bought for 10 years or longer if there is a realistic scenario that the farmland will be converted to building land, which multiplies its value significantly.
Let’s say you buy farmland now to sell it 10 years later for double the price. That’s a great return. But again, as with buying a company, you have to be an expert, or you have to know an expert to ensure that things work well.
10. More Profitable Assets
Physical or intellectual properties that appreciate over time can be the most profitable assets. The list incodes all types of art, wine, cool things to collect, or a great passive income portfolio. The common idea of all the best income producing assets to invest in is that the assets make money in the long run.
In a perfect world, the investment amount is minimal and the payout enormous. Sometimes the appreciation of value automatically takes care of itself. For example, if you bought a Rolex 10 years ago, then the price meanwhile nearly doubled. But it did not double only because of the willingness of people to pay more for such a collectible. Also, the list price went up significantly, automatically increasing your investment value.
Conclusion
There are so many great examples of assets to invest in to produce income that it might be difficult to get started. But that’s exactly the point. You need to get started, and the earlier, the better.
Should you buy 10 tons of cereals now to store this for 20 years in the basement? Most likely not! But how about 10 tons of gold? That would be better. So in most cases, it’s common sense, and your gut feeling will show you the right path.
You have to keep in mind, though, that the value growth should be higher than the inflation, and if something looks too good to be true, it likely is.
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