Welcome Reader,
You may have heard that the average millionaire has at-least 7 streams of income. This is true but it all revolves around one thing: assets.
Assets are your best friend, especially in the age of infinte money printing.
A wide range of assets exist. Stocks, Real Estate, Bonds, Art, Collector’s Memorabilia, Commodities, Cryptocurrency and Precious Metals to name a few. You’ll note that I didn’t include things like cars, clothes, tools etc. These things can definitely be assets to people but they depreciate over time. We are interested in making money, not losing it.
The three main assets I would get a beginner to focus on are Stocks, Real Estate and Bitcoin. This is not to say that the other assets aren’t good enough, they can perform well but require a deeper understanding. For example, an art collector must have some experience with valuable art OR a commodities trader must have knowledge of the futures market and how paper contracts/trade settling all work.
The main thing to understand about creating multiple streams of income is: you aren’t going to get rich overnight. Get rich quick schemes seldom work for the masses. You will have to build your income stream over time until it flows with money.
Let’s assess the three assets in order of perceived risk.
Real Estate (relatively safe + good returns over a long period of time)
Stocks (lots of liquidity, generally good returns + risk of downturn)
Bitcoin (newer asset class, volatility increases risk and reward)
Real Estate has always been a good safe haven for cash. If you don’t have the funding to buy a rental property, you can still create an income stream derived from real estate.
This is done by investing in a REIT (Real Estate Investment Trust). A REIT is formed by an entity that owns properties and pays back shareholders a dividend. For example, Simon Property Group (SPG), owns shoppings malls, outlet centers and community centers across the United States. Retailers like Nike, Burberry, Calvin Klein etc. pay SPG rental income to operate stores on its property. Due to the financial setup of a REIT, profits are given out to shareholders in the form of dividends. These dividends are usually paid quarterly (4 times a year).
For example, consider a made-up REIT named ABC that has a 8% dividend yield. A $100 investment would give you a $8 dividend that is paid quarterly ($2 paid four times a year). Now you might laugh at the thought of receiving $8 but consider what happens if you own $100,000 or $1,000,000 worth of ABC? In the $100K case you’re getting $8K a year for doing nothing, in the $1M case you’re getting $80K. The dividend from the latter case is higher than the average yearly salary of any country in the world.
You can also consider the appreciation (or depreciation) of the value of REIT you own. For example, if you bought ABC at $100/share and after a year it’s worth $110, your underlying asset appreciated while also giving you dividends. Assets can depreciate as-well but real estate has generally been a consistent safe haven. Do your due diligence when choosing the best REIT for you. Consider where they own land, how much land, who leases from them, future outlook on the economy and anything else you may need to know.
The next asset class we’ll consider are Stocks. Similar to REITs, stocks are a great asset to own and create income streams from. This is done through dividends and appreciation of the asset. In the current era of infinite money printing, quantitative easing and reverse repo’s, stocks appear untouchable. Asset price inflation will continue in the future regardless of the current “bubble” popping or not.
Stocks for the most part are limited and deflationary. This means that unlike your fiat currency (USD, CAD etc.), it’s much harder for a company to issue more shares thus as more currency is printed, the limited amount of shares increase in value in comparison to that currency.
Let’s consider an example using the last 18 months as a reference. In America and Canada, the money supply (M2) increased by at-least 20%. This means that 20% of all currency in circulation was printed within the last 18 months. From economics, we understand the notion of supply and demand and it is no surprise that inflation is rising and assets like stocks and real estate are increasing in value. At the time of writing, within the last year, the S&P 500 is up 30%, the NASDAQ 40% and the Dow Jones 24%. In my province of British Columbia, Canada, real estate prices have increased by at-least 30%.
Investing in good businesses is an excellent way to secure a stream of income. For growth oriented companies, this income is derived through the appreciation of stock. For solid businesses that have great profit, this income is derived through dividends.
The last asset class we’ll consider is probably the most exciting of them all. Cryptocurrencies are relatively new, volatile and unique in comparison to other asset classes. The only cryptocurrency I’ll talk about is Bitcoin because it is the only one that is decentralized and secure (learn more on Twitter LINK ).
On average, BTC has appreciated by 200% every year since it was created. This is not the only metric to base your position on but it is definitely something to keep in mind. If you have BTC, you can lend it out and earn interest. This interest is paid in the form of Bitcoin, USDC (essentially a digital USD), or other cryptocurrencies. The great thing with this form of interest is that you are receiving an appreciating asset as interest. As the price of BTC rises, the value of your interest is higher in fiat dollar terms.
This whole process is similar to putting your money in a high-interest savings account BUT you’re getting a much better yield than what any bank in the world will give you. Here are some examples…
Ledn (6.10% on BTC & 8.50% on USDC)
BlockFi (4% on BTC & 7.5% on USDC)
Voyager (5.75% on BTC & 9% on USDC)
These returns are MUCH better than the traditional banking system (LINK). Even if you were to find a teaser rate that was close to 2%, you would still lose money to inflation. Another thing to understand is that the interest is paid monthly and compounded. This benefits you ALOT as the amount of interest you earn increases every month along with the overall position.
The main thing to understand with crypto lending is that it is not FDIC insured. This means that your funds are not guaranteed incase something bad were to happen to the company. This goes hand in hand with the notion “not your keys, not your coins”, meaning that once your crypto is put towards lending, it is technically no longer yours.
It is recommended to put no more than 10-20% of your overall crypto position into lending just to avoid any possible risk of losing your money.
Personal Opinion: I’ve been earning interest on my Bitcoin for over a year and have had zero problems. I personally have allocated about 10% of my position into earning interest. Analyze your tolerance of risk and position yourself accordingly.
Other cryptocurrencies and different types of lending can net you bigger returns but they require a-lot more risk and thus for a novice investor, aren’t recommended. Feel free to explore different types of lending rates and coins on Block Fi or OkCoin.
To sum up, you have Stocks, Real Estate and Bitcoin. If you’ve been keeping up with monetary policy then you will understand that asset price inflation is occurring and will continue to occur. Saving your cash sounds great but it’s a losing battle against inflation. As one of my favourite twitter accounts says: Get Money, Buy Income.
These were three easy ways to increase your income. For the most part, they are tried and trusted principles that investors have used to accumulate wealth over a period of time. These aren’t get rich quick schemes and they require consistency. You have to remain level headed and disciplined with your financial habits. The earlier you start, the more time you will have to compound your returns.
Thank You,
Disclaimer: The views expressed by the author are not intended to serve as any form of financial advice. Please do your own due diligence.
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