Increasingly, everyday working adults are taking advantage of passive investment opportunities as a way to accumulate wealth and maximize their income, without needing a second job or investment expertise. If you want to sock away a small proportion of your dream job's wages to support your future financial security, there's no better time to start than now.
The key to choosing the best vehicle to grow your nest egg is to determine:
- How much surplus income you can afford to invest.
- What returns you want to make.
- The level of risk involved.
Below are five ways to maximize your income that carry the highest potential returns, with the least risk and demands on your time.
1. Transferring Cash Into a High-Yield Savings Account
Consider a high-yield savings account because they have the potential to earn over ten times more interest than the national average of other types of savings accounts.
Because nearly 70% of Americans have less than $1,000 in savings, according to a GoBankingRates survey, this type of savings product is ideal. It is also right for busy people who aren't interested in constantly tracking and managing their accounts.
Advantages of a High-Yield Savings Account
A great advantage of a high-return savings account is that it's essentially effortless to hold and carries no risk. In addition, these accounts offer the following:
- Even when interest rates are low, it still outpaces returns on other types of savings accounts.
- There is no risk on values up to $250,000, provided the account has FDIC insurance.
- If circumstances change, you can tap into your savings, as needed.
By setting up an automatic transfer each month, your salary will work harder for you without any additional effort.
2. Investing in Equity Mutual Funds
Equity mutual funds are a risk-averse option that primarily invests in stocks, without the investor having to do any of the legwork. The equity fund manager will run through a few questions to identify the appropriate stocks to invest in. They might ask:
- How much risk exposure are you comfortable with?
- What is the purpose of your investment?
- How much do you want to invest?
After that, the fund manager will send a list of recommended mutual funds and small-savings instruments. Liquid mutual funds also have the dual benefit of accumulating growth, while also allowing the investor to make fast withdrawals when they need access to their savings.
3. Low-Risk Bonds as a Long-Term Investment Strategy
Bonds are essentially a loan made to a company or government agency in exchange for interest. Most bonds have a fixed interest rate, so investors know what they will earn. They receive coupons reflecting the interest and a repayment date for the original bond. These are relatively safe investments, but a small amount of risk is involved depending on the business's stability.
When it comes to investing, the highest returns are often earned through investments in more volatile markets. Government bonds are less exposed, so the returns tend to be lower.
4. Using Expendable Income to Crowdfund Real Estate
Real estate is a viable investment, but it’s not feasible for people without significant savings. Crowdfunding is a potential solution to this dilemma.
Investors can assess opportunities through crowdfunding platforms and contribute to a real estate investment trust (starting at $500) that has healthy returns and flexible investment policies. On average, an investment in crowdfunded real estate returns 12.25% on the original sum.
Most real estate investments are made into a portfolio of properties rather than one individual premise, and returns are paid out quarterly.
The downside to crowdfunding is that it is usually a privately held fund, not a public stock. If you need access to your investment, it's not so easy to liquidate. Capital is normally tied up for a fixed period, from six months to five years, and the values of portfolio properties could decline.
5. P2P Lending to Maximize Your Income
Peer-to-peer (P2P) lending is a little unconventional, but potentially very profitable. It is a direct investment whereby you finance an individual, or group, without a middleman. There are several P2P lending platforms to explore, but in short, you're lending cash to someone who wants to start a business or raise cash.
Diversifying Investments Through P2P Lending
Investments in P2P projects start at $0.01, and you can build a portfolio by investing in a mixture of loans in $20 increments (or as much as you’re comfortable with). Lenders receive monthly repayments as the borrower pays the loan back at an agreed interest rate.
Returns to investors are generally higher than average, and P2P interest rates offered to borrowers are usually much more appealing than a bank loan. A reputable P2P platform performs considerable vetting before an applicant can ask for others to invest in their loan. If you do your homework, there's less chance you'll lose money—and you can reinvest those earnings into new projects or sit back and watch your income multiply.
Choosing the Right Way to Maximize Your Earnings
The options explored above present relatively low-risk and low-effort ways to increase earnings and ensure your salary acts as a catalyst for additional income.
However, it's vital to recognize that almost all investments carry an element of risk, so make sure to only invest what you can afford to lose.
The best way to start investing in your future is to assess how much and how often to make contributions, and how important it will be to access that cash in the event of an emergency. Once investment goals are set, you're in a great place to make intelligent investments that provide significant returns even with small monthly contributions.