Passive Income Strategies: Earning 10% Returns On Investments

There are many ways to invest your money, but not all investments are created equal. Some are safer, but yield lower returns, while others are riskier but offer the potential for higher returns.

If you're looking for an investment that will yield a 10% return, you'll need to embrace a certain level of risk. Here are some options to consider:

- Private credit market: Private companies often have to offer more favourable terms to investors as it's harder for them to get financing. You can expect higher yields, shorter durations, and your investment is typically secured by assets.

- Paying off high-interest debt: While this isn't technically an investment, paying off credit card debt with a 20% interest rate is equivalent to earning a 20% return.

- Stock market investing via index funds: Investing in individual stocks can be risky, but index funds offer a more diversified way to invest in the stock market. Historically, the S&P 500 has had an average annualised return of 11.14%.

- Fine art and collectibles: Art investing platforms like Masterworks allow you to invest in artwork and realise profits when the art is sold. Art has been known to perform well during high-inflation periods.

- Buying an existing business: Many small businesses sell for 3-5 times their profits, which can equate to a 20-50% annual return if profits remain stable.

- Peer-to-peer lending: Regular people loan money to those in need of a loan, often yielding returns in excess of 14%.

- Real Estate Investment Trusts (REITs): REITs allow you to invest in the real estate market without the hassle of buying and managing property. They tend to offer good returns and outperform the broader stock market during periods of high inflation.

- High-yield or junk bonds: These are corporate bonds with a credit rating below investment grade, indicating a higher default risk. Junk bonds tend to offer higher interest rates to compensate for the additional risk.

Fine art and collectibles

• Understanding the Market: Fine art and collectibles are considered "alternative investments" that fall outside traditional asset classes like stocks, bonds, and mutual funds. This market can be complex and difficult to predict, with values based on subjective factors such as commercial, social, and intrinsic value. It's crucial to educate yourself about art and collectibles, their market value, and the risks involved.
• Risks and Challenges: Investing in fine art and collectibles carries significant risks. These include high costs and fees, lack of investment income or dividends, the prevalence of counterfeits and forgeries, and the potential for destruction or damage. The market for these assets is also relatively illiquid, making it challenging to find buyers and sell your pieces.
• Research and Due Diligence: Conduct thorough research before making any investments. Study the artists and their work, visit museums and galleries, and establish relationships with art professionals and advisors. Due diligence is essential to minimise the risk of forgery and ensure the authenticity and provenance of the artwork.
• Diversification: Diversifying your portfolio across different types of art and collectibles can help manage risk. Consider investing in a range of formats beyond canvases, such as photography, costumes, archaeological items, prints, and editions.
• Long-Term Perspective: Fine art and collectibles are often long-term investments. Artworks may take time to appreciate in value, and there is no guarantee of short-term returns. Be prepared to hold onto your investments for the long term and ride out any market fluctuations.
• Passion and Personal Interest: It's important to find a balance between investment and personal interest. Buy art that you genuinely like and would enjoy having in your home or office. This way, even if the investment doesn't yield immediate financial returns, you can still appreciate the cultural and aesthetic value it brings.
• Online Platforms and Fractional Investing: Take advantage of online marketplaces and platforms that specialise in art and collectibles. These platforms can offer greater transparency, data-driven insights, and more accessible investment opportunities, including fractional ownership, allowing you to invest in fine art without needing to be a gazillionaire.
• Art as a Portfolio Diversifier: Some investors view fine art and collectibles as a way to diversify their portfolios beyond traditional stocks and bonds. However, due to the illiquidity and volatile nature of the art market, it is generally considered a riskier investment compared to more traditional asset classes.
• Art Investment Funds: If you're interested in investing in fine art but want to mitigate the risks of individual pieces, consider investing in mutual funds or alternative investment platforms that specifically focus on works of art. These funds pool investments from multiple investors to purchase artworks, providing diversification and professional management.
• Art as a Passion Asset: Fine art and collectibles are often driven by passion and personal interest. Many collectors buy art because they are passionate about it, and some wealth managers suggest that art and collectibles should be part of an overall wealth management strategy. However, it's important to remember that the art market is highly unpredictable, and there is no guarantee of significant appreciation.
• Famous Artists and Blue-Chip Art: When investing in fine art, it's worth considering the work of well-known artists with established markets. For example, the works of artists like Banksy, Andy Warhol, and Damien Hirst have demonstrated strong performance and resale value.
• Art Advisory and Authentication: Consider seeking advice from art investment advisors or art advisors who have expertise in the art investment environment and can guide you in making informed decisions. Additionally, authentication and provenance are critical factors in the art world. Ensure that you only purchase artworks with proper documentation and a clear ownership history.

In summary, investing in fine art and collectibles can be a complex and risky endeavour, but it also offers the potential for substantial returns. It is crucial to approach this asset class with caution, conduct thorough research, and diversify your portfolio to manage risk effectively.

High-yield savings accounts

These accounts are similar to traditional savings accounts but pay a higher yield. They are generally offered by online banks and credit unions, which don't have to pay for expenses that brick-and-mortar banks do, and so can offer higher interest rates. High-yield savings accounts are also federally insured, so your money will be safe.

The best high-yield savings accounts have strong interest rates, good perks, and national accessibility. They also have no monthly maintenance fees and low minimum opening deposits.

• DCU Primary Savings Account: 0.05% to 6.17% APY
• Varo Savings Account: 2.50% to 5.00% APY
• Axos ONE Savings and Checking Bundle: up to 4.86% APY
• Openbank High Yield Savings: 4.75% APY
• Pibank Savings: 4.60% APY
• Newtek Bank Personal High Yield Savings Account: 4.55% APY
• BrioDirect High-Yield Savings Account: 4.55% APY
• Jenius Savings Account: 4.50% APY
• Barclays Tiered Savings: 4.25% to 4.50% APY
• LendingClub LevelUp Savings Account: up to 4.50% APY

Real estate investment trusts (REITs)

REITs tend to invest in apartment buildings, data centres, healthcare facilities, hotels, infrastructure, office buildings, retail centres, self-storage units, timberland, and warehouses. They can be publicly traded on a stock exchange, or private.

REITs are an attractive investment for several reasons. They offer:

• Steady income through dividends
• Long-term capital appreciation
• Diversification
• Exposure to real estate without the complexities of directly owning property
• Competitive long-term returns
• A hedge against inflation

However, there are also some risks to investing in REITs, including:

• Sensitivity to interest rate changes
• Economic downturns
• Sector-specific challenges
• High management and transaction fees
• Taxation of dividends as regular income

Paying off high-interest debt

Credit cards often charge high interest rates, sometimes as much as 18% or more, if you don't pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you returns to match an 18% interest rate on your credit card.

If you're carrying a balance on a credit card with a 20% interest rate, paying down that balance is equivalent to receiving a 20% investment return. That's the fastest and easiest 20% you'll ever earn.

If you have multiple debts, it's best to start by paying off the debt with the highest interest rate. This will save you the most money in the long run. While you focus on paying off the debt with the highest interest rate, continue to pay the minimum on your other debts.

If you're in a position to invest, it's important to consider the interest rate on your debt in comparison to the return you expect to earn on your investments. If the interest rate on your debt is higher, it's usually best to prioritise paying off that debt before investing.

However, it's also important to consider other factors, such as your financial security and peace of mind. If you don't have an emergency fund or you're struggling to make minimum payments, it might be best to focus on building up your savings and paying off your debt before investing.

Additionally, if you have credit card debt, consider consolidating it with a loan that has a lower interest rate. This can help you pay off your debt faster and save money on interest.

Overall, paying off high-interest debt is a wise financial decision that can provide a better return on your money than most investments.

Private credit

• Low correlation and diversification: Private credit as an asset class has a generally low correlation to traditional assets like stocks and bonds, offering an additional level of portfolio diversification.
• Potentially higher yields: Private credit funds and instruments often have a higher yield than many traditional fixed-income vehicles.
• Lower volatility: Private credit funds and investments often have a lower volatility level than other high-yield debt instruments, providing a level of downside protection for investors.
• Access: Private credit funds offer investors expanded access to an asset class that was previously accessible only to institutional investors like pension funds and endowments.

However, there are also some downsides to private credit:

• High costs: Most funds and investment vehicles offering private credit access to retail investors come with high costs relative to many other investment vehicles available to them.
• Illiquidity: Funds that invest in private credit do not offer the daily liquidity that comes with a regular 40 Act mutual fund.
• A down market or economy: There are concerns about how private credit funds will perform in the next economic or market downturn, as the level of risk is unknown.

Overall, private credit can be a good option for investors seeking relatively stable and predictable returns that often exceed those of bonds and other fixed-income assets.

Frequently asked questions