Almost all wealthy and successful people have assets that produce money and long-term wealth.
But, exactly, what are these assets that make people wealthy?
Before we get into the assets, let's talk about ten assets that are making people rich right now, as we speak well in this episode of the better man project.
Let's use the author of the well-known book Rich Dad, Poor Dad as an example. A liability, according to Robert Kiyosaki, is an object, a property, or any possession that takes money out of your pocket. An asset, on the other hand, is an object, a property, or any possession that puts money in your pocket. Wealthy people concentrate on accumulating assets and limiting liabilities in order to increase their wealth.
We now have a clear understanding of what an asset is.
1. Make a stock investment.
Let's start with the first asset that people use to become wealthy: stocks. For centuries, stocks have made people wealthy.
Did you know that if you bought $200 worth of Apple stock in 1980, it would be worth over $180,000 today? Stocks are not as complicated as they may appear when a person buys one.
They are purchasing a small piece of a company, making them a small part owner with rights to the company's growth and profitability. For example, if a company worth $10 million issues 1 million shares and you own 50,000 shares, you are entitled to the company's growth and profitability.
This gives you a 5% ownership stake in the company, or half a million dollars in value.
2. Put money into dividends
Now, there are two main ways to make money with stocks. If the value of the company in which you own stock rises from $10 million to $50 million dollars, the value of your 5% ownership rises from half a million dollars to 2.5 million dollars.
For example, Apple was worth around 192 billion dollars in January 2010 and will be worth around 192 billion dollars in March 2020. Apple is estimated to be worth 1.3 trillion dollars.
This means that investors who bought Apple stock in January 2010 have made an average of 600 and 70% on their investment over the last ten years; a $10,000 investment in January 2010 would be worth around $67,000 in March 2020. Collecting dividends is another way people make money with stocks. Many companies distribute a portion of their profits to stockholders, and investors who receive dividends receive a quarterly check on top of their investment growth. Investors can either use this passive income from dividends to spend as they please, or reinvest this cash flow back into buying more stocks, compounding their earnings even more. Bonds are another investment option that people use as part of their wealth-building strategy.
A bond is different from a stock in that it is a debt that a company owes to investors. A stock is a small ownership of a company that entitles you to the company's gains or losses, whereas a bond is a debt that a company owes to investors.
This means that when you buy a bond, you are lending money to a company or government that will be paid back with interest at a predetermined date. Bonds are considered safe for stock investments because they are not stock ownership but rather loans that will be paid back.
So, if a company loses market value, stockholders lose value as well, but bondholders do not, and in some cases, gain value because the company must still pay its debts regardless of market value.
Unless the company goes out of business.
They will be obligated to pay bond issuers their debts.
Bonds are generally considered safe investments.
Bonds also provide a lower return on investment, with an average return of 3% per year. Bonds are used to diversify an investor's portfolio and reduce total risk. Bonds, like stocks, can be purchased on major stock exchanges.
3. Commercial real estate
For many years, real estate has been a tool that has made many people wealthy, and for good reason: as the population grows, more people need a place to live.
As a result, there are a variety of ways to make money with real estate.
The first is by renting out your property to tenants and receiving a check each month with no ongoing work required, making this type of income passive. The second way people build wealth with real estate is through debt.
Yes, many investors use debt in the form of a mortgage to purchase a home.
This enables them to purchase a property even if they do not have the full purchase price, while their tenants pay down their loan and build equity in their home.
For example, if you paid $100,000 for this property and put down $20,000, you would need to borrow $80,000.
Let's say we're talking about the next 15 years.
This means that you have a monthly mortgage payment of $445, excluding taxes, because your rent is paid by tenants.
This means they're also paying your mortgage, which means you're earning an extra $5,333 per year in equity on top of your monthly cash flow, but we're not done yet because real estate values tend to rise over time.
So, if a property is held for a long time, it can be sold for much more than it was originally purchased for.
Residential real estate refers to properties where people live, while commercial real estate refers to properties where people conduct business, such as an office building or a restaurant.
Land or farm real estate can also be rented out to farming businesses to help them expand their operations while earning a profit.
4. Real estate investment trusts (REITs).
Now, if real estate sounds appealing, but we don't want to deal with the associated management and logistics,
Then a reads might be a good choice for you.
This is an acronym for real estate investment trust, which is a company that owns and operates real estate and sells shares to investors in exchange for dividends.
When an investor buys a REIT, it's similar to buying a stock.
They are purchasing stock in a company that owns and manages real estate properties. This company collects the cash flow generated by the properties and distributes it to its shareholders in the form of dividends. Real estate investment trusts (REITs) can also be bought and sold on major public exchanges such as the New York Stock Exchange or the Nasdaq, making it easier for an individual to purchase.
5. Start Your Own Company
Building their own businesses is one of the most popular ways for people to make money right now.
Starting and scaling a business is not a passive way to make money for most people. It takes a lot of effort to build and scale a business.
But, if done correctly, we can systemize this business to be more passive and turn it into a passive income asset number six index funds. We previously discussed stocks and how many people have become wealthy using them, but this type of asset takes it a step further.
Stocks can also cause us to lose money, and buying individual stocks can be quite dangerous.
Because no one can truly predict what the market will do, unless you are a master investor like Warren Buffett or Ray Dalio, attempting to forecast the performance of a single company is a risky move.
This is why index funds are valuable in and of themselves.
6. Index Investment Trusts
Index funds are mutual funds that match or track a specific segment of the financial market, such as the SP 500, which tracks the 500 largest companies in the United States.
This means that if one company loses 20% of its value, your overall investment does not lose 20% of its value. The benefits of an index fund include instant diversification, which means that your investment is safer than if you put all of your money in one company, and low operating expenses, as this type of fund follows a sector of the market.
It doesn't necessitate any kind of active management.
This means you won't have to pay any management fees, which will eat into your profits.
If you have an invention that you believe has commercial potential, you can apply for a patent to protect it, and companies will have to pay you to use it.
If your invention has marketable value, you can licence your patent to companies and earn residual income from it.
Have you heard of this linky? This simple little invention has made around three billion dollars in profits, similar to the Furby, which was a patented idea that made around five hundred million dollars per year at its peak. The khushboo patent, invented by Scott Stillinger in the 1980s, was sold to Hasbro for 100 million dollars. Trademarks protect other properties such as logos names and even phrases.
For example, the phrase on the screen was trademarked by Disney and cannot be used commercially by anyone else without paying a fee to Disney.
8. Digital Products
Any business or individual can benefit greatly from digital products.
Have you ever noticed how some of the most well-known celebrity entrepreneurs, such as Daymond John, are entering the digital information industry?
This is due to the fact that digital products are extremely profitable assets.
This is something you can create once and profit from on a daily basis in a passive manner.
There are many different types of digital products now.
For example, if my friend Tom is a filmmaker, he can create a variety of digital assets to supplement his income.
For example, if other filmmakers admire his use of colour, he can create a preset for his colour grading styles that other filmmakers can use, or he can create music stock footage or sounds that he can sell to other creators as a filmmaker.
He can make plugins to help other creators with their editing.
He can also create a training course that teaches others his filmmaking process, and Tom now has six digital products that can supplement his filmmaking business, even if he isn't actively involved.
Copyrights are a type of intellectual property that protects things like books, music, and poetry, among other things.
This is a valuable asset because these copyrights can be licenced out for a fee. JK Rowling is one of my favourite examples.
She is the author of the popular Harry Potter book series, which pays her royalties.
Every time a book was purchased, the books were turned into movies.
Since her intellectual property was used in the movies, she received another layer of royalties from merchandise sold based on her characters, and then Universal Studios created The Wizarding World of Harry Potter, where the attractions are based on her intellectual property, further increasing her royalties. Rowling is said to receive royalties from ticket sales, merchandise, food cells, and even beverage cells sold within the park because they all use her intellectual property, and she also receives royalties from her licencing deals to produce Broadway shows based on her writing of Harry Potter and the Cursed Child.
10. Social Media
This is something that many people didn't believe was real just a few years ago.
Then, when influencers began earning as much as A-list celebrities, the public took notice, and celebrities began to become social media influencers.
It's not just the high levels of attention that social media allows us to achieve; it's also the level of relationships we can form on these platforms. It's amazing and extremely valuable ten years ago.
You couldn't interact with a company or a celebrity by watching them on television. Imagine.
How much more likely are you to buy their CD, go see their movies, or even buy their products if you send a message to your favourite artist and actually get a message back now that we live in a world where this is a reality?
The best thing about social media when it first comes out is that there is no barrier to entry. Anyone can use these platforms to build great businesses around them.
With social media, anyone with a camera on their phone can start building an income-generating asset.
Now, I am a firm believer in leveraging social media to generate revenue.