Since investing is the most popular way to earn passive income, there are countless alternatives for those interested. They can choose to buy stocks, bonds, property, mutual funds, private equity, and much more. The ultimate goal, regardless of which investment vehicle is used, is to maximize profits and minimize the risk. The problem, however, is the fact that investments can be quite unpredictable. Due to this, the number of those who are successful with passive income sources is low.
A popular way to improve one’s odds of success in investing is to focus on the long-run perspective. This means that the buyer will not just think about the immediate returns. On the contrary, they will be prepared to spend the necessary time until their money grows. Well, one of the easiest ways to do so is through something called an annuity, according to Juanita Causey, a financial expert.
A Basic Overview
An annuity is a fixed amount of money that is paid to somebody frequently, meaning it is a predetermined sum that someone earns on a regular basis. Unlike traditional jobs, however, annuities are not earned through physical labor. Instead, they function like most other investment routes where income is earned passively. So, the first important benefit of annuities is related to its risk.
Unlike most choices, buying annuities are associated with much less risk. Consider, for instance, an individual that is in the market to purchase shares of publicly traded companies. According to Juanita Causey, this type of investing is extremely common for beginners. Once that party purchases some stocks, they will become the shareholder of a certain company. This means that their earnings will be directly related to the performance of the company and outside factors. Since it is quite difficult to predict how well some business will do, stocks are one of the riskiest investment options.
With annuities, however, the payout is not expected to happen rapidly. It is set to take place over an extended period of time via small installments. Thus, the risk of losing money is almost nonexistent when compared to stocks.
Another great benefit of buying annuities revolves around a perpetual payment system. Think about the way that most employees in the nation are compensated. Instead of simply earning the entire sum of their annual salary immediately, they get it monthly or bi-weekly. This way, the funds are proportionally allocated by the employer and the worker. With things like stocks, however, all earnings are practically grouped once the shareholder sells their asset.
Well, once again, annuities offer the very opposite. As Juanita Causey further mentions, these types of investments are perfect for individuals who like steady and repetitive outcomes. For instance, these would be the people who prefer to earn $5,000 every month for a year instead of $60,000 in one day. Doing so facilitates a healthier allocation of money and improves one’s spending habits.
Although annuities and stocks have been used as opposing examples, they are not always disconnected from each other. For example, annuities can be large portfolios where many different stocks, bonds, or options are grouped together. Given how diverse these portfolios are, however, the risk remains low. This is also quite important for those who want to make a solid plan related to their retirement. After all, most retirement options revolve around prepaid annuities that will start paying out eventually.
Think about the traditional 401(k) plans to visualize the concept. They start when an employee puts money aside, and the employer matches it. Then, these contributions are combined and remain untouched for years. During that time, however, they are invested into various portfolios by unbiased third-party companies. Once the employee retires, they become entitled to the accumulated proceeds of their retirement fund. For many people, this means having a source of perpetual income that is paid out constantly.
Lastly, annuities are a good option for those who like deferring their taxes. This means that the tax liability on certain investments will be postponed. Although it will still exist in the future, the taxpayer will be given a pass until they cash out on their annuity. Sometimes, this seamless benefit accumulates the most savings!