Introduction
As a high-income earner, you have more diversified options when it comes to choosing your investments. You have broader horizons to allow your investment portfolios to grow.
The high income lets you work around things in terms of arranging for your house rent, groceries, and tuition fees for your children. You then have enough disposable funds to keep aside for investment schemes.
On this parlance, let us discover the top 10 Investment Options For High Income Earners. Helping you get started further:
Traditional Investment Vehicles
When it comes to choosing traditional investment vehicles, there are two broader options that you can probably choose from. These are: a. Equity shares and stocks, b. Bonds
Let us have an overview of each of the above:
A- Equity Shares and Stocks
You can procure shares, a basket of fixed-income securities, and dividend-paying stocks from the equity markets or stock-holding corporation firms out there. When you purchase individual stocks and shares, you can enjoy the potential of earning a high-value income. However, you must do your market research before you venture into purchasing these shares or stocks from the market.
For a more diversified exposure and a low-key investment risk, choosing ETFs and Index funds can prove better choices after all. Index Funds and ETFs are low-cost and pave the way for a greater degree of diversification, as you can have a basket of high-performing stocks and shares clubbed inside an indexed basket.
Say, for instance, the S&P 500. Plus, index stocks and ETFs are low-key maintenance as well. So, those of you who are starting your investment journey afresh, going for index funds and ETFs, prove wiser choices indeed.
Choosing dividend stocks is perfectly suited for those of you who want regular sources of income in the form of dividend payouts. Dividend-paying stocks ascertain you with long-term growth and potential tax benefits that you get to enjoy.
B- Bonds- For the traditional investor
Retirees, pensioners, and senior citizens do not have access to their 9-5 jobs. Therefore, these are retail investors who are highly risk-averse.
As a risk-averse investor, you do not want to lose your capital vault or face the risky volatility of changing market conditions. Therefore, you choose capital-safe investments. And, these are different types of bonds that you can choose from.
Federal and state-level authorities issue municipal bonds that are entirely capital-safe. These bonds provide fixed returns to the investor, and the capital money gets reimbursed to investors once these bonds are up for redemption.
You can look for corporate bonds that can offer you better rates of return as compared to municipal bonds. However, these bonds are subject to changing interest rates that might impact the overall value of your investment portfolio.
And finally, you have US-based treasuries and I-bonds that have inflation-protected norms, like the incubation of TIPS. This way, your inflationary concerns are taken care of in a hassle-free manner indeed.
Real Estate
Real estate is another lucrative avenue by which high-income earners can diversify their investment portfolios. Here are three simple ways by which you can own real estate assets. Let us have an overview of each of the above:
A: Physical ownership
You can own residential buildings and commercial properties and become a seasoned real estate owner. You can collect rental receipts from individuals and business owners. Plus, you can sell properties as and when they appreciate. This way, you get regular income and capital-based investments both covered in one.
B: REITs (Real Estate Investment Trusts)
If you do not like owning multiple properties but still want to get a hands-on to the industry, here is how you can do so. You can own real estate shares, equities, bonds, and fixed-income securities from stock holding companies. You can get interest payouts, coupons, or dividends from the shares or real estate equities that you own. The best part is that you need not physically own properties and can still enjoy the appreciating real estate markets.
Private Equity and Venture Capital
Posh and sophisticated retail investors, institutional investors, and highly accredited investors love investing their funds into private equity and crowdfunding initiatives.
Let us discover different ways by which you can diversify your investment portfolios using private equity and venture capital as your base:
A- Direct Investments
You can directly invest via private equity firms. You can procure their buyout shares that indicate management quota. Or, invest via shares through leveraged buyout options, too.
B- Through Private Equity Investment firms
You can approach Private Equity firms that issue shares and stocks of private firms that are not listed on stock exchange markets. Say, for instance, Angel Investing is an investment platform that allows you to buy and sell PE shares and bonds.
Tax-Advantaged Accounts
High-income retail investors can invest their funds into tax funds so that they capitalize on lucrative tax benefits that are given to them by local state governing bodies, as well as by private tax firms.
Here is a rundown on how this can be done on a hassle-free note indeed:
A- Backdoor Roth IRA
Roth Accounts are generally meant for investors who are middle-class citizens or earn wages below the poverty line. Tax benefits can be availed by the lower strata of society so that a better disposable portion of their earnings is available for them to run their households.
To enable tax benefits even as a high-wage earner, you can make use of the Backdoor Roth IRA. Backdoor IRA Accounts allow high-income earners to get tax benefits when they invest or divert funds into IRA accounts. This is although you earn income above the limits.
B- Mega Backdoor Roth IRA through 401 (K)
You can invest mega backdoor Roth accounts through a 401(K) even if your income exceeds standard limits.
C- Health Savings Accounts or HSA
You avail triple-level benefits if you stay eligible under the state-owned Health Savings or HSA accounts.
D- Defined Benefits Plans
Defined Benefits plans are great for high-earning professionals and business entrepreneurs diversify their investment portfolios and avail a whole fleet of tax benefits too.
Structured Notes
Structured Notes provide customized and diversified investment portfolios for retail as well as institutional investors. You can choose your baskets that comprise equities and fixed-income bonds.
Here are popular structured notes for you to choose from:
A- Equity-Linked Notes or ELNs
B- Auto Callable Notes
The product issuers check if the purchase points of assets reach barrier limits as set on the auto-callable notes. Once the notes reach barrier limits, the auto-callable notes get called, and the notes are redeemed.
The best part here is that investors get hands-on to their auto callable notes with interest earnings even before the original term period of the notes.
C- Principal Protected Notes or PPNs
Investors receive coupon payouts and interest earnings from time to time. Above all, they can get their principal amount despite falling market conditions. Therefore, these are 100 percent capital-safe investments that you can look for.
Alternative Investments
You can look for alternative investments if dabbling with traditional financial derivatives isn’t your cup of tea. Let us have an overview of what these alternative investments are:
A: Hedge Funds
Highly accredited investors access hedge funds to diversify their investment portfolios. Here, hedge fund companies use aggressive investment strategies like share betting, arbitrage, and leveraged options to enhance the value of their capital investments. Here, investors have the potential to make significant profits on their income, while potential risks are also higher on the cards.
B: Commodities
You can invest in real-time commodities like gold, silver, and oil in small proportion fund baskets. This can lead to investment diversification and accelerate your growth. The value of the portfolios depends on the ups and downs that prevail in the commodity market.
C: Currencies
You can dabble with high-moving currencies like dollars, pounds, euros, and yen using multiple configurations and permutations- combinations. You can also deal with cryptocurrencies and Bitcoin trading that has recently been added to posh investment portfolios. Although the returns on this portfolio can be quite rewarding, the risk factors of dabbling with currencies can also be higher on the cards.
International Diversification
When you have more money to spare, you can make your investments via international havens. Let us look at different ways by which this can be done:
A- International ETFs or Mutual Funds
You can sign up with international mutual fund companies from residing in any part of the world. This way, you can have access to internationally acclaimed ETFs, shares, S&P 500 indexes, and a lot more. This way, you can earn more as you would get dollars credited into your account in the form of coupons or interest earnings.
B- Global Real Estate
You can sign up with some of the property developers that reside in Dubai, UAE. This way, you can buy shares, property deeds or estate portfolios that are produced by top-notch real estate companies. And, you get regular tax-free payouts, plus sell your portfolios as your real estate equities appreciate.
Insurance
With insurance, you can diversify your investment portfolios in more than one. Firstly, you can avail yourself of a whole range of insurance benefits. These include life insurance, medical claims, and personal development policies.
Secondly, you can link insurance products with investments so that they provide you with regular returns on investment for your portfolios.
Thirdly, you can coordinate your retirement planning and estate planning when you enjoy the tax benefits you can avail under various insurance-based banners.
Let us have a look at insurance-based investment products. Helping you through with a rundown of the same:
A- Whole or Universal Life Insurance
A Whole Life Insurance or a Universal Life Insurance can bring a whole lot of insurance benefits while offering tax rebates as well. This way, you can anticipate tax-deferred growth and add to holistic investment solutions like estate planning, too.
B- Annuities
These are insurance products with guaranteed income benefits, too. These products come to you with higher fee slabs. You must therefore read the offer documents carefully before you invest in annuities.
Green Life Initiatives
Quite a lot of NGOs focus on green earth initiatives. These include tree planting, ocean cleaning, plastic clearing, and adapting to renewable power plant projects. You can invest via green life initiatives when you purchase bonds or investment deeds from subscribers. This way, you support NGOs that work for noble causes.
We call it ‘Impact Investing’ in the industry parlance. Your funds align with socially responsible causes. You can purchase green bonds and engage with impact-focused investments through authorized platforms.
Estate and legacy planning
As a high-income earner, you can make way for holistic investment solutions. These include Retirement planning, Estate and Legacy planning, and Tax planning.
Let us have a brief overview of the same:
A- Establishment of Trusts
You can establish a trust in which you can invest your funds. You can plan to invest via trust funds so that you can plan your estate and legacy planning in a streamlined manner. Here, you utilize your funds to set up a legal team. The legal team helps distribute your funds and properties to your nearest kith and kin post your demise.
B- Donor-Advised Funds
You can opt for charity-based initiatives. The NGOs can offer you tax benefits when you donate your excess funds for free food campaigns or other efforts that can help the poor and the needy. You can accumulate these tax-free coupons to pursue tax planning or retirement planning initiatives.
C- Family Limited Partnerships or FLPs
You can invest your excess funds by setting up Family Limited Partnerships, or FLPs. Many joint families promote food, clothing, and home decor businesses using this forum. You can therefore initiate wealth and property transfer deals amongst your nearest kith and kin on a hassle-free note.
The Bottom Line
You must learn to diversify your investments across geographies to get a more elevated perspective on how your funds must work prudently for you. You can connect with an investment advisor who can assess your risk tolerance ratios and curate investment schemes accordingly. What are your thoughts on this? Do mention it in the comments below!
Frequently Asked Questions or FAQs
Can a high earner avail of capital gains tax?
Answer: The high-income investors can avail of income tax rebates if they have made investments via tax-advantaged accounts. IRA Roth Accounts and 401 (K) accounts allow contributions from high-level investors even if their earnings exceed standard contribution limits. To choose tax-efficient investments, you must get in touch with a financial advisor or a tax professional to get tax rates that pertain to your domicile. Browse investments that offer tax advantages and investments that provide retirement savings for 2024 and 2025.
How do you choose retirement accounts?
Answer: Your retirement schemes can be chosen while you are at the working stages of your career life. This way, you can be entitled to tax-free withdrawals once you reach your senior age. For a traditional IRA, you must know the brokerage accounts that need to be set up. You must understand the tax bracket for your taxable funds and then allocate your savings for retirement. You must ideally plan saving for retirement way ahead of your time.
Why are IRAs important?
Answer: IRAs help you save taxes that would otherwise apply to your taxable income. To provide tax rebates, you must sign for tax saver investment plans. Tax bills can get dearer as you retire. Therefore, you must plan for tax-free growth. The max tax benefits can be derived when you opt for tax-saving investment plans from the ordinary income you earn. Once you turn 50 or older, you must allow your income stream to be diverted into tax-saving plans.
You cannot defer making the right investment plans. You must reinvest your investment earnings into tax accounts to help improve your liquidity on investment portfolios. These tips help earners looking for passive income sources. And, when you follow wiser investment tactics, they can help you make bigger and more diversified portfolios after all.
From 2023 onwards robo advisors were introduced to help conversion of investments from manual mode to an automated mode and you can capitalize on these bots that give you investment-adied and tax benefiting recommendations too.
