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Invest for Freedom and Invest for Income

When you were a kid and adults asked what you wanted to be when you grew up, you probably answered with some common responses like a doctor, lawyer, astronaut, fireman, or other exciting or high-paying job.

Today, you’re grinding through 8 to 12 hours a day, 5-6 days a week. As your income grew, so did your lifestyle. As with many high-income earners, the more they make, the less freedom they have.

Many of us dream of escaping the daily grind to have more freedom. Maybe you want to be able to set your hours and live on your terms – whether that be by taking more vacations, spending more time with family or doing good in this world.

Unless you find another source of income, you’re always going to be trading time for money.  

Even if you’re making $400,000 a year, you may be unable to achieve true financial freedom generating a passive income, opportunity, source of passive income without a source of passive income.

Fortunately, there have been trailblazers who have already demonstrated how to derive income from passive income investments successfully. And only when you start investing for income will you truly be able to achieve financial freedom. 

I’ve narrowed down a list of the most passive income investment opportunities along with the pros and cons of each, but first, let’s talk about saving. Investing takes capital, and unless you have a nest egg laying around to invest tomorrow, you’ll have to start building your investing pot by saving today.

I don’t want to sound like a financial advisor, but there are two ways to increase your investing capital – by earning more or by spending less. I’m not going to preach to you on what you should cut back on, but the cold hard facts are unless you cut back or work more hours to earn more; you will not get untracked to get on the road to earning passive income.

We live in a world of real-time data where everything is literally at our fingertips. There are downsides to all this information and technology. However, in the investing world, it’s a game-changer and levels the playing field between the ultra-high-net-worth investor and the rest of us. This makes investment opportunities that were once only available to the wealthy and connected now available to all qualified investors.

Enough of the generalizations, let’s get into the various types of passive income investments and the pros and cons of each. These are not listed in any particular order or ranking.

CD’s/ Money Market
Virtually risk-free since the FDIC insures deposits. What’s more, everyone can open up a CD or Money Market account. There are no investor qualifications like with many alternative investments, which require investors to be accredited. The challenge is the low return, which is often consumed by inflation.

Fixed Income – Bonds, Treasuries
Risk-free, backed by the full faith and credit of the U.S. Treasury. Acts as a hedge against stock market volatility. However, the returns are low. Interest rates have steadily declined over the past 30 years. The 10-year yield currently sits around 1.75%. Once again, when factoring in inflation, nothing is better than the 10-year yield, which sits at -.50%.

Dividend Stocks
You earn a consistent income from established companies with a history of profitability. The downside is the volatility of Wall Street. Although dividend stocks of established old guard companies tend to be less volatile than growth stocks like in the tech sector, they are still subject to stock market volatility, economic downturns, new tariffs, and comments by the politicians on Wall Street.

During the Financial Crisis, many dividend stock companies reduced their payouts or suspended them altogether.

Private Equity/Startup Investing
Investing in startups, private equity, and private company funds can be hugely financially rewarding if you know where to find the right investments and be willing to take losses. In the past, investors in most startups are banking on cashing out through an IPO, acquisition, or merger. The probability of a successful exit is very low, but the upside is typically substantial.

Around 9 out of 10 startup investments by angel investors and venture capital funds fail. Along with heightened risk, private investing is also illiquid due to federal rules against resale. Also, you must be an accredited investor.

Secured Private Lending
Typically, it has good fixed returns, but it’s not truly passive. Secured private lending becomes costly when a deal goes south since foreclosing on the property is both time-consuming and expensive with significant legal expenses. Plus, if you lend in borrower-friendly states like New York or New Jersey, foreclosure can take years, which leaves you with a non-performing investment longer than you signed up for.

Passive Real Estate Fund/Syndication
Partnering with a proven team in the business of commercial real estate investing or private lending funds offer investors the opportunity to reap the income, appreciation, and security benefits of direct real estate investing and secured private lending without the headaches. These are often referred to as syndication, limited partnership opportunity, or real estate fund. A real estate fund or syndication can provide income and appreciation benefits while not being a correlation to the volatility of Wall Street.

Not all passive investments are created equal, but if you’re looking for a passive investment that balances high returns with low risk, consider exploring real estate investing or private real estate lending through private equity or debt fund.

Whether you go the private investment route or some other route, the most important thing you can do for your financial future is to start today.

Don’t wait for retirement!

The sooner, the better for generating a passive income that will make money while you sleep where your earnings will no longer be tied to the hours in the day.

Investing for Growth,

Michael Foley

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