Volatility is back in the US stock market and the crypto market, with many blue chip stocks and top cryptos well above their all-time highs.
Investors looking for the best way to meet their 2022 financial goals would likely be happy with a 6% return. After all, a 6% compound return over 12 years doubles your money. Here are three strategies for achieving at least a 6% return in 2022.
1. A basket of stocks with a high dividend
A classic way to earn passive income is to invest in high dividend stocks. Some companies have a habit of paying and increasing their dividends over time by supporting them with the company’s free cash flow. In fact, some companies, like the pipeline giant Kinder Morgan (NYSE: KMI), have made it clear that they intend to drive shareholder value primarily through the dividend, not necessarily through rising stocks.
Equal parts of defense giant Kinder Morgan Lockheed Martin (NYSE: LMT), integrated oil major Chevron (NYSE: CVX), and the titan of telecommunications AT&T (NYSE: T) would give an investor a return of around 6%. The advantage here is that instead of investing in a single stock with a 6% return, an investor is able to diversify into four different companies in four different industries. Of course, you can choose a basket of stocks depending on your interests and what you want to invest in. This is just one example. But the bottom line here is that there are plenty of attractive high-yield dividend-paying stocks to customize in an assortment that suits you.
2. High yield stablecoins
A new way to generate passive income is by using something called stable coins. Stablecoins are simply token versions of a US dollar that provide liquidity and stability to crypto exchanges. Some stable coins, such as USD coin (CRYPTO: USDC) are backed by real dollars held in banks. You can buy USD coins for $ 1. Some exchanges will offer high interest rates for these coins. For example, BlockFi offers an Annual Percentage Return (APY) of 9% on the first $ 40,000 of USDC or GUSD and an APY of 8% for any amount thereafter.
The catch is, there is no insurance from the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). There aren’t that many regulations. And there is the uncertainty of the business itself engaging in risky lending practices and going bankrupt. The interest rate is not high because the exchange is generous. On the contrary, it is high because the stock market thinks it can get a higher return by using this money for other lending practices.
Gemini is offering up to 8.05% APY on its stablecoin, Gemini Dollar (CRYPTO: GUSD), through their Gemini Earn account. Gemini claims that its stablecoin is still redeemable for $ 1 at Gemini and that its GUSD reserves “are eligible for FDIC insurance up to $ 250,000 per user when held by State Street Bank and Trust.” Still, read the fine print, and we see that Gemini says that “FDIC insurance only applies to USD reserve funds. GUSD exists as ERC-20 tokens on the Ethereum (CRYPTO: ETH) chain of blocks; the tokens are in the custody of the user and are not insured by Gemini.
Nothing in this world is free. People interested in crypto without the volatility of Bitcoin (CRYPTO: BTC) or Ethereum may be interested in high yielding stable coins as long as they understand that the emerging industry has its risks.
3. A basket of paid cryptos
It may surprise you to learn that most exchanges pay interest on well-known cryptos like Bitcoin or Ethereum. You can think of the interest rate as a dividend yield. For example, BlockFi pays an interest rate of 4.5% on the first 0.1 Bitcoins held in its interest account and 5% APY on the first 1.5 Ethereum. This is the same concept explained in our discussion of stablecoin. Only this time Bitcoin and Ethereum are used as collateral instead of cash. And because Bitcoin and Ethereum are riskier and more volatile than cash, the interest rate on these cryptos is lower than that of a stable coin like the USD Coin or the Gemini Dollar.
For example, you can invest around $ 14,000 on BlockFi in equal shares of Bitcoin, Ethereum and USD Coin or Gemini Dollar and earn 6.2% interest rate while enjoying all the benefits of Bitcoin and Ethereum. This strategy can be a great way to earn passive income on crypto and not feel the need to get sucked into all the noise and volatility that is common in space.
Passive profits in a way that’s best for you
A 6% return on a single security is not hard to come by, but it can be risky. Getting creative by leveraging a basket of high-yielding stocks or interest-bearing cryptos provides passive income while keeping you invested. Risk averse investors may prefer to sacrifice the advantages of Bitcoin and Ethereum by simply investing in stablecoins. Investors who don’t want anything to do with crypto are probably best served by sticking to stocks. Ultimately, the best strategy depends on your personal financial goals and the kind of exposure you want in certain markets.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.