Being financially free means having enough money coming in passively that can cover life’s expenses. Once without the need to go to work, you can be considered to be financially free. To become financially free, we must acquire assets that produce enough income to sustain our lifestyle. So, let’s talk about investments to quit your job.
Also Read: 22 Passive Income Ideas To Help You Make Money In 2022
But what assets can provide us not only with cash flow to pay our life’s expenses but protection against market downturns and inflation. So here are 7 assets investment to quit your job.
1. Cash Flowing Real Estate
It is said that real estate is one of the best ways to create wealth. And for two reasons. One, real estate tends to go up in value over time. If you look at historical data, at the start of the 1990s the median home price in the United States was $97,000. Today the median home value is over $342,000. The value of the market more than tripled in the last 30 years.
Second, a person can own this type of asset without actually having the money to purchase it. For example, let’s say that we buy a property for $200,000. And put $40,000 as the down payment, and finance the other $160,000 over the next 30 years at a 2.5% interest rate. Our expenses including mortgage payments, interest, insurance, and taxes come out t be $830 per month. This means that with $40,000 or in many cases much less we can own a $200,000 asset.
Let’s say that we can rent this house for $1,200 per month. This means after expenses we have $370 positive monthly cash flow or $4,440 per year. The great thing about real estate is that your asset is being paid off by someone else, allowing you to build equity on your property. The value of the property is increasing year after year and you are receiving positive cash flow month after month.
Not to mention the financial strategies. That one can use to expand their wealth with real estate. Many investors use the growth in value of their property to borrow from their assets to buy more properties.
For example, let’s say that your $200,000 property grew in value and is now worth $250,000. So you decide to refinance this house and take those $50,000 out of the property in cash. Then you use those $50,000 to buy another $200,000 property. This means that you were able to use your original $40,000 investment to buy $450,000 worth of growing real estate. And essentially doubling your cash flow since now you have two properties generating income every month.
Also, you can get tax benefits by owning real estate. This will be one of the best investments to quit your job.
2. Dividend Stocks
One of the easiest ways to begin building passive cash flow is to own stocks of highly profitable companies that pay dividends to their shareholders. Dividend Yields vary from company to company.
For example, Apple has a 0.57% dividend yield while ExxonMobil has a 5.3% dividend yield. A dividend yield simply means what percentage of the value of the stock they give out as a dividend.
A $100,000 stock with a 3% dividend yield means that you’ll receive $3 per year per share you own. Dividend yields are just parts of the decision to buy a stock. We must invest in financially sound companies with great financial history and a bright financial future.
For example, At & T has a dividend yield of 8.3% which is much higher than the market average. But the stock itself has lost nearly 33% in value over the last 5 years. Making dividends part of our consistent cash flow is a long-term plan unless you have large capital to invest.
For example, let’s say that you have an average dividend yield of 3% in your investment portfolio. So to make $1000 per month in dividends we need a portfolio of $400,000. This is why for most people dividend investment is a long-term plan.
Many investors take advantage of compounding interest and reinvestment of their dividends to grow their portfolios to a level where their cash flow becomes significant. Although this is a long-term plan, it is a great addition to our cash flow since this type of income is very passive and is taxed at a lower level than regular income.
Normally investors of public companies don’t have much control over how much the company’s profits are passed down to investors. If you want to have more control over how cash flow is distributed you might like the next asset. So this is also one of the best investments to quit your job.
3. Cash flowing businesses
There are many profitable businesses out there that are not on the New York stock exchange. These can be physical businesses like a restaurant, a coffee shop, a franchise, an ATM. Or they can also be online, as an application or a software business.
The goal here is to own the business but not operate it. Not everyone can operate a business. It takes a very specific set of skills to successfully run a business. But there are many people out there that won businesses, but instead of running the business, put people in place that they can operate the business for them in exchange for a good salary or equity in the company.
This type of asset tends to have a higher level of difficulty than other forms of investing. This might require either starting a business from scratch doing the work until the business can run autonomously. finding businesses in need of an investor or a partner or buying an already operations business or franchise. Although this asset has a higher level of difficulty, it can provide a lot of benefits, like control over cash flow.
When you won the business you have control over how much of the business’s profits. You can take it home. Also as a business owner, you have as a business owner you have many tax advantages like taking advantage of the dividend distribution tax which is typically lower than normal income tax.
By owning a business one can spend some of the business’s money before paying taxes as long as it benefits the business. For example, if you have a business with multiple locations you can buy a nice car of your liking as a company car that allows you to go and visit all your different locations. Since it’s a company car you can buy it or lease it with pre-tax money. Always seek professional advice to know what you can and can’t do with your pre-tax money.
Now let’s look at protecting your wealth against those forces that try to bring your money down like inflation and market crashes. This is also one of the best investments to quit your job.
4. Gold
Many sophisticated investors like Ray Dalio have a smaller location of their investment portfolios in commodities such as gold as a hedge against inflation and devaluating assets when markets go down.
In Dalio’s all-weather portfolio which contains a strategy where our money can grow in any economic condition, Dalio allocated 7.5% of its total assets in gold as a layer of protection against inflation.
In a world of devaluating currency, gold can provide stability of value as the dollar goes down in value gold tends to go up in price providing the owner protection or a hedge against the devaluation of the dollar.
5. Bonds
Bonds in this day and age are known as not very great investments since they don’t have the best returns and in some instances don’t even beat inflation. But there are strategies where bonds can be used as a layer of protection against market downturns. Especially when someone is in or approaching retirement.
Legendary investor Warren Buffett said that if he passed away before his wife he would instruct his manager to leave the money for his wife in a very specific yet very simple portfolio. Buffett instructed to have 90% of the money in simple index funds like the S&P 500 and another 10% in bonds.
To see how effective this strategy was, Finance professor Javier Estrada tested this strategy with historical market data. And to the surprise of many, this simple strategy outperformed. Many experts advise on retirement investing but Estrada added a twist to this strategy to take full advantage of the protections bonds can offer in an investment portfolio.
No one can predict when the market will crash. We just know that it’ll happen at some point so we must have a strategy in place especially if we are already financially free and living off of our investments.
Estrada says that once someone is retired and withdrawing money from their investment portfolio keep an eye on how the market is doing. If the market is doing great take the money from the equity side since it is the one producing the most returns. But if the market is not doing great and is losing money take your money from the bomb side since bonds tend to go up in value during bear markets. This will allow the equities time to recover in value instead of selling them when they are down.
6. Cryptocurrencies
In this day and age, it is impossible to ignore the impact cryptocurrencies have in the world and the potential they have moving forward. The whole idea of cryptocurrencies is to have a decentralized worldwide currency.
Many consider cryptocurrencies as digital gold because unlike fiat currencies like the dollar that can be easily manipulated by a government causing inflation many cryptocurrencies like bitcoin have a finite amount of units that will ever be available.
This can eventually allow cryptocurrencies like bitcoin or ethereum to act as a form of safety against inflation and potentially be used in the future as transactional currency which currently is not the case.
The only downside of cryptocurrency is that many people are buying this form of currency as a way to get rich which too many have helped them create massive returns. But it also means that cryptocurrency values aren’t stable and suffer high volatility.
This type of asset can provide not just a hedge against inflation but potentially growth as well. This is becoming one of the trending investments to quit your job.
7. Startups and growth companies
How many of you guys have ever thought to yourselves what if I invested in amazon 20 years ago. How much money would I have now? What if I got on the ground floor of uber or Netflix.
The reality is that we can’t turn back time and invest in those great companies. But, on the bright side, new companies are created every day that will eventually be great.
These types of investments can provide enormous returns but they also come with an enormous risk those who invest in these companies normally allocate only a small portion of their portfolio into these investments.
Understand that it is likely that these investments will go to zero but on the other hand if they invested in the right company their wealth can skyrocket and take them to completely new levels of wealth.
All of these are great investments for those who are educated. But for those who are not could be a disaster. Stock investing can be a great way to build long-term wealth, but without financial literacy, we might miss out on great opportunities.
Investing in our education is the foundation of investing and developing the life we want.
So leave a comment sharing your thoughts about these investments to quit your job.