Ramit Sethi Recommends These 7 Income Producing Assets

Make your money work for you by putting it in one or more of these assets.

The best way to build wealth is to put money in places where it can grow. When your money is earning 3%, 5%, or more per year, it makes a significant difference, especially with the magic of compound interest.

If you're looking for income producing assets, financial guru Ramit Sethi has seven that he recommends. The first three are what he classifies as safe income producing assets that offer low risk and smaller returns. After those, he recommends four riskier income producing assets with potentially higher returns.

1. Certificates of deposit (CDs)

A certificate of deposit (CD) is an account with a fixed interest rate and term. Like bank accounts, CDs are FDIC-insured, so they're about as safe as it gets. They also work similarly, in that you earn interest on the amount you deposit.

The main difference is that with CDs, you're locking up your money for the term length of the CD. Terms normally range from three months to five years, and interest rates are higher for longer terms. If you withdraw money before the term is up, you're charged a penalty.

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2. Bonds

Bonds are a financial asset that organizations use to raise money. Companies and governments at all levels, from local municipalities to the federal government, can issue bonds. Investors can then buy these bonds to earn interest while taking on little risk.

Each bond has an amount, a fixed interest rate, and a term length. For example, you may find a five-year, $10,000 bond with a 4% interest rate. One of the more popular types of bonds right now are I bonds, government-backed securities with interest rates tied to the current rate of inflation.

When you invest in bonds, you earn interest at regular intervals and get your original funds returned after the term ends. In some cases, bond prices rise, in which case you could also sell a bond you purchased for a larger amount.

3. Real estate investment trusts (REITs)

A real estate investment trust (REIT) allows you to invest in real estate like you'd invest in a stock or mutual fund. Instead of needing to go out and buy properties yourself, you can invest in a REIT, which contains a real estate portfolio. This can be income producing real estate, such as apartment buildings, real estate loans, or a combination of the two.

REITs tend to pay out above-average dividends, which are great for generating passive income. Dividends and the potential price appreciation also make REITs a fairly high reward option that isn't a huge risk.

4. Dividend-yielding stocks

Many stocks pay dividends, normally on a quarterly basis. A dividend is when a company distributes profits to its shareholders, so you get a cut of your investment's success.

Like REITs, dividend-yielding stocks are a quality addition to a portfolio. Although stocks are volatile, good stocks can grow in value significantly. When you invest in stocks that pay dividends, you have an asset with growth potential that also earns passive income for you.

5. Property rentals

A property rental is simple in theory but oh-so-complicated in execution. The traditional option is to buy a property, such as a house, apartment, or an apartment building, and rent it out to tenants. It's a serious commitment, both from a financial and time perspective, but it can also be very profitable.

If you want to start smaller, another option is renting a spare room. With the popularity of homesharing services, most notably Airbnb, it's easier than ever to dip your toes into a property rental.

6. Peer-to-peer lending

Peer-to-peer (P2P) lending is when individuals get loans directly from investors. P2P lending platforms facilitate these types of loans. Investors deposit funds with the platform, which it distributes to approved loan applicants.

As with any type of lending, the risk is that borrowers default on their loans. Most P2P lending platforms give you the option of funding lower- or higher-risk loans depending on whether you're interested in higher returns or greater security.

7. Creating your own product

Up to now, every item on this list has been an asset you can buy. The last one is different, as it's an asset you create to make money. Ramit Sethi offers several examples of product options, including:

• E-books
• Online courses
• Podcasts
• Webinars

Making a product isn't going to be right for everyone. Some people are too busy or simply aren't interested in doing it. But if you are interested, this method has excellent earning potential.

There are all kinds of income producing assets out there, so if you want to grow your money more, you have options. For beginners, Sethi recommends any of the first four options (CDs, bonds, REITs, and dividend-yielding stocks). They're easier to get started with, and you could do perfectly fine sticking to just those four. If you want to branch out more, then property rentals, P2P lending, and your own product may all be worth considering.