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Income producing assets: what are they and how to create them?

While everybody is naturally interested in acquiring assets like land and shares that would generate high incomes from rents or dividends, it is necessary to understand what liabilities are.

Investments gone wrong may be considered liabilities like shares that are plummeting in value. One never knows when assets could turn into liabilities! While income producing assets are desired and necessary since incomes are compulsory, be aware of assets versus liabilities.

Income producing assets

Just imagine that a person has won a huge lottery prize. It would be wise to go in for long-term investments that would generate good incomes. What would he invest in? Remember the risk factor that is present in all walks of life; during journeys for instance while being exposed to danger. Money and property are also subject to dangers of values diminishing due to a variety of factors.

Competition, new rules, war and political weather are some factors that could increase or decrease property value and forecasts may not always work correctly.  Generally, the higher the risk involved, the higher the expected profits, an idea not difficult to understand. A gambler is exposed to great risk but could become a millionaire in minutes. Cash flow from assets should be substantial.

Low-risk investments with small incomes

Depending upon the country concerned, bank deposits like savings accounts or term deposits are quite safe but yield marginal returns. Annuities, Treasury Inflation Protected Securities (TIPS), Money Market Funds, Municipal Bonds and US Savings Bonds are several investments that carry little risk but consequently have fixed interest rates over a particular time period. Insurance, mutual funds, and credit card investments also offer secure investments with limited profits.

Financial advisors

While a certain amount of risk is essential in life, it depends upon the situation. A well-heeled person would take more risks, while a person approaching retirement had better avoid taking financial risks so late in life. The greater the risk, the higher are the possibilities of big incomes. With capital available, it is possible to invest in financial instruments or real estate, with definite complex procedures involved. Payments may be stretched over a period of years, according to the terms and conditions settled upon.

High yield investments

Sticking to the right side of the law, it is obvious that tobacco and drugs, liquor and precious metals have traditionally been high-income businesses, mostly shady. If people want something bad to satisfy vanities perhaps, the possibility of big money arises, like fashion products and fast food. Huge borrowings and financial engineering could result in huge incomes for those who practice such arts.

Investments gone wrong may be considered liabilities like shares that are plummeting in value

Examples of assets

  • Renting out property like homes and offices brings high returns and that would differ according to the location and the extent of the property. The age and condition of the building also matter besides the power to bargain for a good deal. A basement or attic could also provide good rents. Real Estate Investment Trusts (REITs) follow similar approaches with rent-generating properties.
  • Limited partnerships and Master limited partnerships have a group of investors who work together and thus share the risk, popular in the USA.
  • In Canada, Mortgage Investment Corporations (MICs) are attracting a lot of interest, once again organized by a group.
  • Dividend stocks, bonds, and debentures or private lending carry high returns with elevated risks.