What are assets that generate income? Looking at the difference between income streams and assets. 6 assets that earn while you sleep. I am not a licensed investment advisor and this post is not investment advice. This post may contain affiliate links.
With inflation eroding away the buying power of cash at an unprecedented level, it’s a good idea to have some money invested in assets that generate income.
Ideally, the growth and income generated by holding assets will outpace inflation so your money won’t lose its buying power.
But what are the best assets to buy now?
Where should investors put their hard-earned money in a high inflation environment coming out of a pandemic?
In this post, I will look at the best assets to buy now and I will specifically focus on assets that earn while you sleep.
For those that are not familiar with income generating assets,I will discuss what are assets that generate income.
Let’s get started.
What Are Assets That Generate Income?
So, what are assets that generate income?
Simply put, assets that generate income are investments you can buy that pay you regular income.
To be clear, I am not referring to income streams that require side hustling or extra work to make money. I am referring to assets that you can buy that require no effort to make money.
Essentially, that’s the main difference — income streams require some effort, assets require an initial purchase.
Once you purchase an income generating asset, all you have to do is sit back and collect your payments.
Let’s look at the best assets to buy now.
What Are Assets That Generate Income? (best assets to buy now)
1. Dividend Growth Stocks
Admittedly, I am biased because I am a dividend investor.
But dividend growth stocks are a fantastic asset to buy to outpace inflation.
A stock like $AAPL or $SBUX will likely be able to maintain a dividend growth rate of 5 to 10% per year, which should outpace inflation.
Furthermore, in this kind of inflationary environment, where cash is trash, stocks are a low cost way to acquire assets.
Now that zero-commission brokers are available, do-it-yourself investing is more affordable and accessible than ever.
Related Article: Dividend Growth Stocks – The Top 9 Dividend Stocks For 2021
2. Rental Properties
If you can afford to invest in real estate, it’s probably a great place to store your money in high inflation environments.
As we have witnessed in many places over the past year, the prices of real estate are skyrocketing.
So, real estate is great for inflation protection.
But you can also take it a step further. If you want to earn income from your assets, you could invest in rental properties.
Of course, it does come with some extra work and a high upfront cost. But the payoff is well worth it if it works out.
For the record, I don’t have any experience with rental properties.
3. Income ETFs
If you are not interesting in researching and analyzing individual stocks, you can invest in income ETFs.
For a low management fee, income ETFs are available that pay monthly income.
If you like the idea of dividend investing but you do not have time to research, you could consider high paying dividend ETFs.
If you are looking for the highest possible monthly income, you could look at covered call ETFs.
Frankly, income ETFs are probably the truest form of passive income, because they require the least effort of all assets.
Related Article: High Dividend ETF Payers For Passive Income Investors
4. REITs (Real Estate Investment Trust)
REIT is short for real estate investment trust.
Simply put, a REIT is a company that owns and usually operates income-generating real estate.
Typically, REITs are comprised of commercial real estate. But some real estate investment trusts own and operate residential real estate as well.
Furthermore, REITS can be traded publicly on exchanges or they can be private. Distributions are often paid out monthly to unit holders.
However, REITs are taxed differently than dividend stocks, so make sure to check with your accountant prior to investing in them.
In comparison to stocks, REITs usually offer less growth than stocks. But there are some REITs that offer both income and growth potential.
If you are looking for a quality REIT to invest in, Realty Income (Ticker: $O), the monthly dividend company, is a great option to consider.
Related article: Monthly Dividend REITs: 5 Reliable REITs That Pay Every Month
5. Index ETFs
In addition to index ETFs, passive investors can consider index ETFs to obtain the market averages.
For most investors, index investing is probably the best way to go.
Even though the income is lower on average, if compared to dividend stocks or income ETFs, the long term growth makes up for it.
In the long term, investors can periodically sell off gains to support their retirement.
If enough money is invested in an index ETF like VSP or VOO that generates 7% growth or more per year on average, investors can live off the gains without selling any principal.
So, index ETFs are still a great asset to buy for income.
They also offer some of the lowest fees.
6. Mutual Funds
The main argument against mutual funds is that the fees are too high.
It’s completely true — the fees are too high in comparison to ETFs.
But comfort has a price.
In my view, it’s still better to earn 5% on something after a 2% fee than it is to earn nothing.
So, if you don’t feel comfortable selecting your own dividend stocks or ETFs, you can always get your bank to advise you on mutual funds.
Yes, you will be paying a higher fee. But at least you will own an asset that increases in value.
What Are Assets That Generate Income — Final Thoughts
In summary, assets that generate income are investments that you can buy that pay you regular income.
Assets are different than income streams because they do not require extra work to make money. Assets only require an initial purchase to make money. You don’t have to side hustle at work to earn income.
Moreover, in a high inflation environment where the buying power of fiat currency is eroding, investing in assets will help to offset the effects of inflation.
Depending on your knowledge level, personal interests, time availability, and willingness to work, these are the six best assets to buy now:
- Dividend stocks
- Rental properties
- Income ETFs
- REITs
- Index ETFs
- Mutual Funds
What assets do you prefer? Are you already investing in any of these assets? Any other assets that you would rather invest in right now?
Related Posts On Earning Passive Income
Income Streams — The 11 Best Income Streams For Financial Independence
Monthly Dividend REITs: 5 Reliable REITs That Pay Every Month
Dividend Growth Stocks: The Top 9 Dividend Growth Stocks For4 2021
High Yield Covered Call ETF – 4 ETFs To Boost Passive Income
High Dividend ETF Payers For Passive Income Investors
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