Compounding is a notion that not everyone has heard of before. If you haven’t, though, you could be missing out on this incredible benefit.
Compounding is when you take advantage of an asset’s ability to generate earnings. You then reinvest those profits so that they can make money for you as well. Another way to say this is that when you engage in compounding, you generate more earnings by building on previous earnings.
With that in mind, we’ll look at some ways you can compound your income in 2022. If you do this correctly, your money will work for you. That way, you won’t find yourself needing to turn to a pay-off calculator or similar tools to deal with debt, or you’ll find that you’re able to pay off your obligations much sooner.
1. Real Estate
Some people get nervous about the possibility of real estate investing. They feel as though real estate is a volatile place to put their money. What they might not realize is that you can invest in real estate without actually purchasing property.
If you can’t afford to purchase an investment property and use it as a rental, you can look into real estate crowdfunding platforms instead. These are business entities where you pool your cash along with other real estate investors. It’s a way you can invest small amounts of money if all you want to do is dip a toe into the real estate investing market.
You might engage in vacation rental arbitrage as well. This practice is similar to subletting. You lease a rental long-term, often for a year at a time. Then, you list the property on Airbnb or similar vacation rental platforms and let travelers use it.
2. Index Funds
You can always invest your money in stocks, but doing so comes with an inherent degree of risk. Instead, you can invest in index funds. They are often relatively cheap and easy to sell or buy and set up to match the performance of popular indexes such as the SPY.
You can invest in index funds through investment accounts such as your IRA or employer-sponsored retirement account. Doing this instantly diversifies an investment portfolio. And, many times, a portfolio that features index funds outperforms professionally-managed funds.
3. Dividend-Issuing Companies
The stock market remains the greatest way to compound wealth. However, every investor must learn how to make it work for them. Avoiding riskier stocks is a strategy that a market novice can easily use.
Instead, you might want to invest in large companies that gain ground when the market is up but become more defensive when it’s down. These low-volatility stocks would include well-known companies like Apple, Berkshire Hathaway, and Disney.
These household names offer a stable place to put your money where it can still grow. They are well-established entities that generally outperform the rest of the market over time.
Compounding Your Income is Not Difficult
Many individuals and families who want to invest and compound their income this year will find that doing so does not have to be all that complicated. Investing in dividend-issuing, well-known companies through the stock market is an option. Putting cash into stable index funds or exploring real estate investments is also possible for most people who are trying to make their money work for them.
Compounding your income might sound a little complicated at first, but once you understand the general idea, you will probably find that nearly anyone can do it. You can start on this path with very little money available, and you should see some positive results. You might also engage in all three of the strategies we mentioned and see which one works best for you as we progress further into the new year.