Guide to Income-Generating Assetsn

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Last Updated:December 20, 2022

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We’ve all read stories about people making thousands of dollars each month thanks to real estate investing or multiple income streams. It’s even more unbelievable when you read how much of this money is considered a passive income stream — meaning they put in the work upfront and reap the financial benefits later. There are times you may feel like these opportunities are passing you by, but guess what? You, too, can reap the rewards from income-generating assets, no matter how little you have to start with.

Most of us already have access to these investments but might feel intimidated by the sheer volume of choices and the limited amount of money we have to start with. Plus, investing in income-producing assets requires patience since many will yield results over a longer time. The trade-off is that some of these investments are considered low-risk (although keep in mind there is always risk any time you choose to invest). Fortunately, there has never been a better time to start investing, and we’ve rounded up a list of our favorite ways to impact your net worth.

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Top income-generating assets

Income-generating ideas are all around us. These require minimum investments to start, but many involve a low financial commitment.

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The stock market

Investing in stocks means you are buying a piece of ownership in a corporation. Corporations sell a fraction of ownership, and this fraction is one share of stock.

Buying stocks when the price is low and then selling when the price is higher is the ultimate goal when people choose to invest in the stock market. Not only do you get to keep the profit, but the interest you earn off the sale will likely be greater than the returns from the low-interest rate a savings account earns.

Whether you’re already an investor or not, you’ve likely heard news surrounding the ups and downs of the stock market. The volatility of the earnings and losses has been a constant headline, and there is reason to believe this trend will continue. This may be enough to scare people away from the stock market. Although there is always risk no matter where you invest, the stock market has offered strong returns over the years, even adjusting for inflation.

Stock market investing takes on numerous forms, and it boils down to how much of a risk tolerance you have. While nothing with the stock market is guaranteed, some types of investments have more risk associated with them. Some potential investment strategies are:

Individual stocks. You can choose to purchase an individual stock for an individual company. Examples of this are purchasing stocks of Amazon or Apple.
Mutual funds. This collection of investment vehicles includes stocks, bonds, money market accounts, etc. There are several types, including fixed-income and equity. It helps investors diversify their portfolios by investing in a collection rather than one company.
ETFs (Exchange-traded funds). Similar to mutual funds, you can buy different stocks bundled together based on specific sectors such as energy, biotechnology, or oil.
Dividend-paying stocks. This type of stock is where companies regularly distribute their earnings as dividends to investors.
Index funds. This is a portfolio of stocks based on an index's performance, such as the S&P 500 index, NYSE Composite, Dow Jones Industrial Average, or NASDAQ Composite.

Individual retirement accounts (IRA)

If your goal is to set aside savings earmarked specifically for retirement, then an IRA may be a solution for income-generating income during your Golden Years. These savings accounts are set up to give the investor (you) tax advantages while ensuring you set aside funds for the future. The funds are invested in a mix of stocks, ETFs, bonds, and mutual funds. There are also investment options for real estate and commodities.

You can open an IRA through a bank or credit union, investment company, brokerage firm, or online brokerage account. The money you set aside can’t be touched until you are 59 ½, or you will face a severe tax penalty, but the tax advantages make it a worthwhile investment for many people.

There are several versions of IRAs, each with different tax requirements, eligibility, and withdrawals. You should also know that the Internal Revenue Service (IRS) sets rules on contribution amounts to IRAs each year. However, despite all the guardrails and rules in place with IRA contributions, they can be a great tool for retirement planning and your investment portfolio.

Annuities

Annuities are often confused with IRAs, but the two types of investments have major differences. Annuities are considered a retirement product too and offer an income stream once you reach a certain age. However, these investments are contracts with insurance companies. You can contribute to these monthly or set up a lump-sum payment.

Like IRAs, annuities have tax advantages. However, there are no contribution limits with an annuity. The money in an annuity grows tax-deferred until it's time for withdrawal. While annuities may be a good retirement income stream for some, the rules and regulations around these accounts are complicated and can be a deterrent when you’re learning to invest. You also have to watch out for high annuity account fees.

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Real estate

People often turn to real estate for a good reason when looking for income-generating assets. Real estate investment gives you multiple options and opportunities for risk and reward. Beginner investors may shy away from real estate investing because of the perception you have to have thousands of dollars to start. While this is true for some real estate investment options, there are now more ways than ever to get started.

Real estate is considered its asset class, so many investors turn to it for diversification in their portfolios. Some of the more popular methods for investing in real estate include:

Rental properties. If you own or finance a property, you can lease it out to tenants and charge enough to cover your costs or possibly bring in a steady cash flow. By becoming a landlord, you take on managing the mortgage, taxes, insurance, maintenance, and tenants, and it often requires a large upfront investment.
House flipping. Flipping houses is not just for shows on HGTV, investors all across the country do it too. The idea is to purchase a property at as low a price as possible and then quickly sell it for a profit. You can also hold onto the property and rent it out over the years.
REITs. Short for Real Estate Investment Trusts, this is when a corporation owns multiple properties and needs investors to pay for the operating costs. Any profits are paid out as dividends to shareholders and may be a steady income source.
Real estate crowdfunding. Now there are options like Fundrise, where investors can build their portfolio through the power of crowdfunding and invest in real estate for as little as a few hundred dollars.

Savings accounts and certificates of deposit

If your goal is to set aside money for a short or long-term need, then a traditional savings account, certificates of deposit (CD), or money market account may be the answer. Savings accounts may get a bad rap for the low-interest payments they yield, but there are several benefits to using them as an investment vehicle and a tool for building wealth. A few benefits include:

Easier access to your funds. Most savings accounts allow you to transfer funds automatically or within a few business days, making it easy to access your savings.
Automatic. You can set most savings accounts for automatic withdrawals so savings become instant.
Overdraft protection. A savings account is not only a place to stash your money and earn interest, it can act as your overdraft protection for your checking account.
Small opening amount. Most savings accounts require very little to open - if any amount is required.
Reduced fees. Most savings accounts are very affordable, with low monthly and maintenance fees.
High-yield options. Researching online savings options or local banks and credit unions will show you which places offer high-yield savings account options. These interest rates are above the national average but may have different terms and conditions, including a variable interest rate.
FDIC-insured. Deposits in your savings accounts and CDs are FDIC-insured up to $250,000, offering you greater peace of mind.

CDs are similar to savings accounts but are for a fixed term and a lump-sum deposit amount. For example, a five-year option where you deposit a lump sum of $5,000 and earn interest for the five-year term.

A money market account is a savings account option that allows you to write checks or use a debit card for withdrawals. These also pay higher interest rates but are more restrictive with maintaining account balances.

The bottom line

Personal finance, including where to invest, is…personal. There are so many choices that it can easily get overwhelming. Starting your search and concentrating on researching the investment strategies we listed above may help take some of the overwhelm and guesswork out of the picture. And you never know, these strategies may be all you need to reach your financial goals.

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Sara Coleman is a former corporate gal turned creative entrepreneur. She began writing professionally several years ago and now contributes to multiple websites, blogs, and magazines. She’s also an avid reader and can’t resist a great historical fiction novel. Sara holds a BA in journalism from the University of Georgia and can be found supporting her Bulldogs every chance she has. She resides in Charlotte, North Carolina, with her wonderfully supportive husband and three children. When she’s not ushering her kids to sports and dance lessons, she can be found creating content for her own website, TheProperPen.com.

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