Warren Buffett Says Make Money While You Sleep: Here Are 5 'Forever Assets'\
Billionaire super-investor Warren Buffett has shared plenty of financial wisdom throughout his nearly 70-year career. On the topic of retirement, he famously said, “If you don't find a way to make money while you sleep, you'll be working until you die.” Apparently, that's true. Without enough passive income (or enough savings to "pay" yourself), you'll never be able to retire. If you're worried that you might not be on the right track to get there, you're certainly not alone.
A Gallup poll conducted earlier this year found that 71 percent of non-retired adults are at least mildly concerned about being able to fund their retirement. In a GOBankingRates survey earlier this year, roughly half of respondents were similarly concerned.So how exactly do you make money while you sleep? We asked the experts for their best "forever assets" that will bring you passive income and/or appreciation.High Yield Savings Accounts
"Amid uncertainty, investors can be confident that they have the potential to earn higher interest through high-yield savings accounts," said Max Lane, CEO of Flourish. “Americans have lost at least $291 billion in interest since the start of 2019 by keeping their savings at America's biggest banks. Traditional savings accounts currently have an average APY of about 0.42%, while high-yield solutions offer 4.5% or more. … That's a difference of thousands of dollars for many households.”
Cash is king, but historically it hasn't been a great idea to hold cash for the long term. In a low interest rate environment, inflation often outpaces your return and your cash actually loses value over time. "Most people don't think of cash as an investment, but rather as a source of protection and security," Lane said. “But cash is becoming an asset class again. With many people experiencing a decline in their purchasing power, the question everyone should be asking is whether their money is working for them right now.
"There's no reason why you shouldn't be getting more than 4.5% on cash right now, especially since high-yield accounts are FDIC-protected (up to a certain amount) and daily liquidity." Real estate is a classic investment vehicle that can provide you with passive income and at the same time evaluate the value. Dr. David Phelps, real estate expert and CEO of Freedom Founders, believes that real estate is "the best asset class."
"Real estate as a tangible asset is what we would call or call an 'inefficient market,' compared to the financial world, which is known as an 'efficient market,'" Phelps said. “This is a major advantage [that allows] the individual investor to take advantage of inefficiencies in the real estate market to come in and invest where the big funds can't access."It also offers several other advantages over other types of assets, including tax benefits, depreciation, cash flow and the fact that it can provide additional leverage by being used as collateral for lending, so you can invest in other properties."
Dividend shares
One of the problems with real estate is that it has a relatively high barrier to entry. Even if you're financing a property purchase, investment properties generally require a significant down payment – something that may be out of your reach, especially if you're just starting out in investing. If that's the case for you, dividend stocks could be a great choice.
"Investing is the ultimate game of patience, and 'forever assets' like dividend-paying stocks really let you make money while you sleep," said Taylor Kovar, CFP and CEO of The Money Couple. "Examples of such assets are companies like Procter & Gamble or Johnson & Johnson, which have a solid history of paying dividends for decades. Thanks to their constant and growing dividends, they can provide a steady stream of passive income. Historically, these stocks have offered investors solid returns, with both firms averaging around 10% to 12% annual returns over the past 30 years.”If you don't know where to start looking for dividend stocks, consider exploring the so-called "Dividend Aristocrats," a list of stocks that have increased their dividends every year for 25 years.
Broad market funds
Broad-market funds, also called index funds, are investment vehicles that try to replicate the performance of either the overall stock market or an index such as the S&P 500. Buffett said one of the best ways to build your retirement savings is to "consistently buy low-cost the S&P 500 index fund. I think that's the thing that makes the most sense pretty much all the time."
Rubina Hossain, CFP and contributor to Annuity.org, said, “You earn passive income from investments that appreciate over time and generate income. This income is then reinvested when you are not using it. The biggest bang for your buck would be index mutual funds and ETFs. These funds offer diversification, meaning you're not putting all your savings into one stock or even all stocks. They also offer investments in a mix of stocks and bonds in one fund and are cost effective.
“Keep it simple and control what you can: Investment costs and taxes (index funds tend to be more tax efficient). Overtime you will generate a nice source of income.”If you are nearing retirement, you can use your existing savings to create your own "perpetual asset" through an annuity. Annuities are financial products that offer payments over a period of time in exchange for either an upfront lump sum or regular payments.
"An annuity is a contract that can offer lifetime or permanent payments for retirees," said Evan Potash, a wealth management consultant at TIAA. “These payments can be fixed payments or variable payments. Fixed payments are common for those who do not want to see fluctuations in their income. Variable payments can fluctuate from year to year depending on the underlying investment, such as the S&P 500. The goal is to combat inflation. A life annuity, along with Social Security, can ensure that you never run out of money, making it a perpetual asset strategy.”
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