In today’s post, we’re exploring some of the hottest, most profitable Wealth Building Strategies opportunities of 2021.
Let’s face it:
It’s all fine and good to have active investments. But active investments, such as investing in local businesses, franchises, or stocks, carry higher risks.
If you’ve accumulated or acquired a large sum of investment capital, a big chunk of that should go to passive investments.
After all, it is these time-saving investments that will free you up to pursue your passions.
All of the investment methods in this post are proven pathways to a higher return on investment than you’d get from a savings account or money market account. Yet they all, taken together, provide stellar diversification.
Let’s dive in.
PS: I am not a financial advisor. The information below is not financial advice and is for entertainment purposes only. Investing in the stock market and cryptocurrencies is highly risky and you could lose all your money. Please do your own research in terms of where you want to invest your money. I take no responsibility for any losses that may occur if you consider this article as financial advice.
10 Wealth Building Strategies & Opportunities
Our first tactic in this post is not a passive income strategy at all. Rather, it’s a way to improve your overall financial well-being. In a way, you can think of it as an investment in reverse. So, without further ado, our first item on this list is…
#1 Pay Off Outstanding Debt
In a typical investment, you put money into an endeavor in hopes of one day seeing a return. When you pay off debt, though, you see an immediate benefit. Sure, technically, your net worth increases.
But more importantly, you:
• Reduce your overall stress, which can make you more productive
• Improve your credit score
• Move closer to owning your assets, instead of the bank owning them
• Are able to take on more risk
Then there’s your annual interest rate to consider.
Let’s say you have $10,000 in debt.
Your annual interest rate is 20 percent. When you reduce your debt, the havoc the interest gremlin can reap on your overall finances is lessened, and you can sleep easier.
As eluded to above, this reduces your overall stress burden. This, in turn, means you’re able to come up with more original ideas or are more willing to take risks that could pay off.
Hitting upon a winning idea comes down to how much mental and emotional bandwidth you have. Paying off your debt is an easy way to increase your access to these valuable resources.
#2 Crowdfund Real Estate Investments
Now that you’ve lowered your stress and have freed up some purchasing power, let’s move on to the main event.
Real estate has long been touted as one of the best passive income streams. Though the degree to which this income is actually passive is debatable. After all, if you act as a landlord yourself…well, that can be a lot of work.
Nevertheless, real estate is always a sound investment in and of itself.
These days, sites exist that enable investors to crowdfund real estate. It’s a new concept that’s catching on in a big way. This type of investment is quite specialized in that you can only co-invest in certain types of real estate.
One such investment vehicle is the eREIT. An eREIT allows you to invest as little as $500 in a property. As the property matures, you receive a passive return on your investment. Typical eREIT returns range from between 8 and 12 percent.
eREIT properties tend to be commercial. Examples include apartment complexes and office buildings. Another type of crowdfunded real estate vehicle is the eFund. An eFund allows you to invest in single, and often residential, properties. eFunds require a minimum investment of $1,000.
These funds often seek to develop raw land. But they’re also known for acquiring and repairing existing properties. These types of real estate transactions typically yield big returns.
Of course, historically, they’ve been outside the reach of smaller investors. No longer. Of course, your return is proportional to your investment.
#3 Invest in Bond Funds
Bond funds are stellar investment vehicles for income generation. They’re much like stock mutual funds in that you pool your capital with other investors. They’re also a restively safe way to invest because they offer the protection of diversification.
Intermediate bonds, in particular, are great for this because they tend to pay high rates compared to U.S. Treasury securities—and, of course, banks.
Naturally, this higher return comes with higher risk. But if you’re diversifying your passive income strategy—which you should be—you can make room for this higher risk.
Besides, while they aren’t risk-free, they do tend to be quite stable. Much more stable, in fact, than long-term bonds can ever be. You see, with a maturity of ten years or less, intermediate bonds are less sensitive to interest rate fluctuations than other bonds.
In other words, when interest rates rise, other bonds lose value.
Intermediate bonds tend to be safer than:
• Dividend stocks
• REITs
• Long term bonds
Yet they offer a respectable return and protection via diversification. That’s hard to beat.
For instance, the Schwab U.S. Aggregate Bond currently offers a return of 2.5 percent. The five-year average is much higher, at 4.3 percent. This fund features bonds with an average maturity of eight years. Over 80 percent of those bonds are rated AAA.
A fund like this is an incredible opportunity if your overall goal is to provide yourself with passive income while remaining diversified.
#4 Peer-to-Peer Loans
You know we’re living in a strange and glorious time when peer-to-peer loans are a reality. P2P lending has taken off in a big way—big enough to make large banks sit up and take notice. This type of investment enables you to play banker by making loans directly to consumers.
P2P loans are typically personal loans, but they’re sometimes sought by entrepreneurs looking to start or fund a business.
Most platforms that allow investors to offer P2P loans collect payments from loan seekers on a monthly basis.
This provides you with a small, regular cash infusion.
When it comes to this type of passive investment, it’s a good idea to set it and forget it, so to speak. The income will be so small that you can’t use it for much right away. Check back later and reinvest when the time comes.
Note that in P2P lending, you don’t provide 100 percent of the capitol yourself. You’re in a pool of other investors who together fund the loan. This means, of course, that your return on investment is proportional to your total contribution.
How this works: a loan is ‘sliced’ up, and you buy the number of slices you want. A single slice is referred to as a ‘note.’
On many P2P lending platforms, you can purchase a single note for as little as $25. So you could, in theory, diversify your total P2P investment capital quite a bit. If you decide to set aside $10,000 for P2P loans, you could invest in 400 total notes across a number of loans.
Naturally, this protects you from default.
Prosper, the largest P2P loan platform, typically reports a return of just over 5 percent. This is quite a bit higher than what you’ll get from a savings account. Or, for that matter, U.S. Treasury instruments.
#5 General Real Estate
No list of passive income opportunities would be complete without a passing nod to the old standby, real estate.
Hey, we’re not knocking it.
Real estate is a sound investment, and it always will be—grim jokes about rising coastlines aside.
If you’re a homeowner, you know how powerful capital appreciation can be. Capital appreciation refers, of course, to the increase in value an asset sees over time.
In real estate, capital appreciation can be the result of several things, such as:
• Proximity to new developments like shopping centers, offices or schools
• A strong economy that results in stable, high paying jobs in the area
• Increased demand in your type of property
• Decreased supply of your type of property
Capital appreciation is most relevant in investment real estate. Typically, in an investment real estate setup, you rent a home to tenants. The rent must cover your monthly mortgage payment. It should also be high enough to cover the home’s ongoing maintenance costs.
You never want to pay for these expenses out of pocket. Doing so defeats the purpose of real estate as a passive income stream.
As the value of the home appreciates, and as you pay off the mortgage, you’ll be able to raise the rent. So, over time, you’ll earn a bigger return on investment. The positive cash flow you earn from investment real estate can eventually outstrip the returns from other investments on this list.
Especially if you invest in several properties.
What’s more, once you own the home outright, you can choose to sell it. This provides a large upfront return that you can invest in other ventures.
This strategy can be useful if you own several homes already but want to diversify your passive investment portfolio.
There are a few caveats to consider, however.
There is some upfront work required.
You will usually be involved in purchasing the property, doing repairs, ensuring it’s livable, etc. Furthermore, you need to find a new tenant whenever you lose one. Otherwise, you’ll have months with zero cash flow.
This is problematic even if you don’t have a mortgage to pay.
For instance, you should always be putting money into your maintenance fund. A lack of tenants means this fund is not being fed.
Real estate may only be a semi-passive investment.
Any upfront work required to get your property up and running weakens the argument that real estate is a passive income stream.
Yet hiring a firm to handle tenets and maintenance will cut deeply into your profits.
#6 More on Real Estate Investment Trusts
Earlier, we mentioned eREITs. Now we’ll explore the REIT.
You can think of a REIT as a mutual fund for real estate assets. It’s a great option for individuals who see the wisdom in investing in real estate but who don’t want to be bothered with managing tenants.
Which, let’s face it, can be a real drag.
A REIT contains commercial properties. A typical REIT may contain:
• A number of office buildings
• Several retail centers
• Apartment complexes
• Hospitals and clinics
With a REIT, you can invest in these commercial properties the way you can invest in a group of stocks. A REIT pays dividends, and there are additional ways to earn when properties within the REIT appreciate in value and are sold off.
Most major brokerage firms allow you to buy and sell REIT shares.
To qualify as a REIT, the organization offering it must pay at least 90 percent of its funds to investors. On average, a given REIT provides a return of around five percent.
However, REITS are highly leveraged. This is because most REITs contain mortgaged properties. So while these REITS offer restively high ROI, they’re also riskier.
Contributing to this risk factor is the fact that REITs are quite volatile. In terms of risk, they’re closer to what you’d see with stocks than bonds.
#7 Robotic Advisors
With the advent of easy-to-program bots, passive investing has taken off in a big way. Robo advisors are designed to safely build and manage a portfolio for you. Since there is no human overseeing things, the firms that run these robo-advisors, charge a much lower fee.
One of the main advantages that a robo advisor has over a human is that it can perform account maintenance activities such as portfolio rebalancing quickly and safely. This allows robo advisors to automatically reinvest dividends, which saves you time.
Another reason that a robo advisor can charge a lower fee is that they tend to invest in ETFs, which tend to charge low fees themselves. Two of the largest robo advisors are:
• Betterment
• Vanguard
Both of these options offer complete, automatic portfolio management for only .25 percent of the account balance. Because this investment vehicle is low-cost and is fully automated, it’s an excellent way to build your retirement fund.
#8 Buy Licenses
Buying licenses, or assuming royalties, as it’s sometimes called, is one of the fastest-growing passive income strategies. The idea here is simple: acquire a license to intellectual property. Essentially, you’re investing in licensing agreements.
This is a bit different than a lot of the other methods on this list because you’re not buying financial instruments per se.
Instead, you’re investing in an idea. Or a song. Or art. Or a movie franchise. Or a—you get the idea.
But you can also invest in:
• Mineral rights
• Videos
• Books
• Syndicated TV
• Oil
• Gas
If something can be licensed, you can acquire that license.
When you do, you earn royalties every time the underlying product, resource or art is used to earn a profit by a third party. It’s a viable passive income strategy because it requires very little work on your part.
You can find licenses to invest in on royalty exchanges. Some royalty exchanges have facilitated multi-million dollar deals on behalf of their clients, and royalty exchange is big business.
#9 Dividends
Pure growth stocks provide explosive growth. But they also come with tremendous risk. Milder stocks exist, though. These timid stocks are far more stable, so they’re not great for active investing. But they have another trick up their sleeves: they pay dividends.
Dividends are predictable, stable returns. With dividend-paying stocks, you can enjoy steady cash flow at low risk.
Other instruments that offer stable cash flow, like the certificate of deposit (CD), don’t offer capital appreciation. Your money can’t grow. CDs simply expire. Similarly, bond payments are fixed. They can’t increase over time. But dividend-paying stocks do sometimes increase significantly in value.
It isn’t common, but it happens.
Finally, dividend-paying stocks will pretty much always offer more than the odd one percent you’ll get from today’s savings and money market accounts.
#10 Invest in Cryptocurrency & Trading Bots
In the last five years or so, cryptocurrency has gone from something of a joke to serious business. The year 2020, for instance, was far and away from the best year ever for Bitcoin, one of the biggest cryptocurrencies.
Let’s say you had invested $1,000 in Bitcoin on January 1st, 2014. Your total return would be 6,311.322 percent. Your annualized return would be 179.256 percent.
Your ending value? – $64,113.20
Of course, not all that glows is gold. Other cryptocurrencies, such as Dogecoin, have not fared as well. Created in 2013, Dogecoin only recently cracked 1 cent per coin. So when it comes to investing in cryptocurrency for passive income purposes, it may be a good idea to stick to well-known, trusted coins.
Additionally, you may want to avoid investing large amounts of capital in one go.
By far, the two biggest coins are Bitcoin and Ethereum. But there is an important distinction between the two.
Bitcoin
Bitcoin is a digital currency. As such, it is an alternative to fiat currency. Unlike the money issued by governments, Bitcoin is decentralized. It’s managed by a distributed ledger that keeps track of all transactions.
This network is made up of nodes, and each node records every transaction independently. This way, if there is a discrepancy, the nodes can self-correct.
For this reason, Bitcoin is extremely secure and low friction. It’s an easy, secure and inexpensive way to transfer funds.
Ethereum
Ethereum is a digital software platform. It allows businesses and other entities to create ‘applications.’ With these applications, entities can create smart contracts. These contracts are maintained using the same ledger technology—known as a blockchain—used by Bitcoin.
As such, these smart contracts are decentralized and are extremely secure. Ethereum is also a currency in its own right. As such, it has intrinsic value while offering industrial utility.
As you can see, the two biggest digital currencies do different things. But you can invest in both, and you can earn passively if they continue to increase in value. In summary:
Bitcoin is a digital currency. That’s it.
Ethereum is a decentralized software platform. It offers tokens, called Ether. These tokens have value, and you can trade them.
An efficient way to invest in cryptocurrency and then manage your investment is to use trading bots. Trading bots are algorithms that manage your holdings for you. Using a bot has several advantages:
• By coding the trading rules into the bot, you take yourself out of the equation. This prevents emotional trading, which will almost always cost you money.
• Bots save you time. You don’t have to sit on charts all day, making small trades. Instead, you can trade on longer time frames, which are inherently more stable. What’s more, your bot can trade for you while you sleep.
• Bots turn cryptocurrency trading into passive income. Because the process is automatic once you provide the trading bot with trading logic, cryptocurrency investing becomes a passive income opportunity.
As you can see, cryptocurrency, and trading bots in particular, provide an exciting opportunity to diversify your passive income portfolio. However, it’s important to get a trading bot programmed by a reputable individual or company.
If you’re thinking of using a trading bot provided by a trading firm, be sure to look for plenty of reviews online.
Also, check the firm’s terms and conditions to see whether they hold themselves completely blameless should the bot malfunction.
There you have it: 10 stellar passive income strategies that you can get started with today. Now go forth and make 2021 your best year yet!
