Passive income is a type of income that is generated with little or no ongoing effort. It is income that is earned with minimal work, such as from investments or rental properties. Passive income can provide a steady stream of income that can help to supplement a person’s regular income, allowing them to save or spend more time on other activities. Passive income is often considered a desirable source of income because it does not require constant effort or attention to generate. However, it is important to note that passive income can take time and effort to set up and maintain, and it may not always be a reliable source of income. Now read this again: it usually takes a lot of time and effort upfront to get the right systems in place to set up and maintain passive income streams, so it does not require that much effort down the road.
Popular Passive Income Sources
There are many different sources of passive income, and the best option for a particular person will depend on their individual circumstances, goals, and risk tolerance. Some common sources of passive income include:
- Dividend-paying stocks: Investing in stocks that pay dividends can provide a passive income stream.
- Rental properties: Owning rental properties and collecting rental income can be a source of passive income.
- Peer-to-peer lending: Participating in peer-to-peer lending platforms can allow you to earn passive income by lending money to individuals or small businesses.
- High-yield savings accounts or certificates of deposit (CDs): These can provide a small amount of passive income in the form of interest.
- Online businesses: Some online businesses, such as e-commerce stores or affiliate marketing websites, can generate passive income through sales or referrals.
- Investment properties: Investing in properties that are managed by a professional company can provide passive income in the form of rent.
- Royalty income: Earning royalties from creative works, such as books, music, or inventions, can provide a passive income stream.
- Passive index fund investments: Investing in passive index funds, which track the performance of a broad market index, can provide passive income in the form of dividends and capital appreciation.
It is important to note that many sources of passive income require upfront work and ongoing maintenance in order to generate income over the long term.
To get passive income from dividend-paying stocks, you will need to invest in stocks that pay dividends. Here are the steps you can follow to do this:
- Determine your investment goals: Before you begin investing in dividend-paying stocks, it is important to have a clear understanding of your investment goals. This will help you to determine the type of stocks that are most appropriate for you, as well as the amount of risk you are willing to take on.
- Research dividend-paying stocks: Once you have determined your investment goals, you can start researching dividend-paying stocks. There are many resources available that can help you to find stocks that pay dividends, such as online stock market platforms, financial publications, and investment websites.
- Choose a brokerage: In order to invest in stocks, you will need to open a brokerage account. There are many different brokerage firms to choose from, and it is important to compare their fees, account minimums, and other features before deciding on one.
- Select your stocks: Once you have opened a brokerage account, you can start selecting the dividend-paying stocks that you want to invest in. It is generally a good idea to diversify your portfolio by investing in a variety of different stocks, rather than putting all of your money into a single stock.
- Monitor your investments: After you have invested in dividend-paying stocks, it is important to monitor your investments regularly to ensure that they are performing as expected. You should also be prepared to make changes to your portfolio if necessary, such as selling off under-performing stocks or adding new stocks to your portfolio.
It is important to note that investing in dividend-paying stocks carries risks, and you should be prepared for the possibility of losing money. You should also be aware that dividends are not guaranteed, and the amount and frequency of dividends may vary over time.
The S&P 500 is a stock market index that is designed to measure the performance of 500 large publicly traded companies in the United States. The historical CAGR (compound annual growth rate) of the S&P 500 represents the average annual return that an investor would have received if they had invested in the index at a particular point in the past and held onto their investment until a later point in time.
According to data from S&P Dow Jones Indices, the CAGR of the S&P 500 between 1926 and 2020 was approximately 9.8%. This means that if an investor had invested $100 in the S&P 500 in 1926 and held onto their investment until 2020, their investment would have grown to approximately $6,665, assuming that all dividends were reinvested.
The S&P 500 Dividend Aristocrats index is a subset of the S&P 500 that includes companies with a long history of consistently increasing dividends. The historical CAGR (compound annual growth rate) of the S&P 500 Dividend Aristocrats index represents the average annual return that an investor would have received if they had invested in the index at a particular point in time and held onto their investment until a later point in time.
According to data from S&P Dow Jones Indices, the CAGR of the S&P 500 Dividend Aristocrats index between 1989 and 2020 was approximately 11%. This means that if an investor had invested $100 in the S&P 500 Dividend Aristocrats index in 1989 and held onto their investment until 2020, their investment would have grown to approximately $3,465, assuming that all dividends were reinvested.
It is important to note that the CAGR is an average annual return and does not take into account the specific timing of an investment or the impact of any individual investment decisions. The actual return on an investment in the S&P 500 Dividend Aristocrats index may be higher or lower than the CAGR, depending on a variety of factors, including market conditions, the specific investments made, and the investor’s risk tolerance.
Rental properties can be a source of passive income if you are able to find tenants who will pay rent on a regular basis. Here are the steps you can follow to get passive income from rental properties:
- Determine your investment goals: Before you begin investing in rental properties, it is important to have a clear understanding of your investment goals. This will help you to determine the type of properties that are most appropriate for you, as well as the amount of risk you are willing to take on.
- Research the real estate market: Once you have determined your investment goals, you can start researching the real estate market to find properties that are likely to generate a good return on your investment. You should consider factors such as the location of the property, the local rental market, and the condition of the property.
- Choose a property: Once you have identified a property that you would like to invest in, you will need to determine how you will finance your investment. This may involve taking out a mortgage, using cash, or using other forms of financing.
- Find tenants: After you have purchased a rental property, you will need to find tenants to occupy the property and pay rent. You can do this by advertising the property online or in local publications, or by working with a real estate agent or property management company.
- Manage the property: Once you have tenants in place, you will need to manage the property to ensure that it is well-maintained and that you are receiving regular rental payments. This may involve handling repairs and maintenance, collecting rent, and addressing any tenant issues that arise. You can often hire a third party to manage your property, but it comes at a cost of usually 8%-10% of rent collected in the US.
It is important to note that investing in rental properties carries risks, and you should be prepared for the possibility of losing money. You should also be aware that property values can fluctuate, and there is no guarantee that you will be able to find tenants or that you will receive regular rental income.