When you have extra cash in your pocket, it’s never a bad idea to invest that money into something with a high ROI (return on investment). Rather than letting your money sit in an account with a low-interest rate, it’ll benefit you more to find ways to build on what you already have. Passive investment is a great way to earn money without being actively involved in the process.
This type of income comes from a form of business that you’re able to put the work into upfront and then allow it to generate money for you. If you’re considering getting involved in different types of investments, then you’ll want to consider a few different passive income ideas. In the guide below, you’ll find more information about passive income investments and why they might be the right choice for you.
Continue reading below to start planning your passive investment strategy!
In this article
What’s Not Considered Passive Income
Before we dive into the different types of passive investments and why you could benefit from them, let’s discuss what’s not considered passive income. It’s important to know the difference between active vs passive investment so as to not get the two confused. Active income is income received by performing a specific job task or duty.
Here are a few examples of active income.
A Second Job
A second job is a good way to earn extra money on the side, but it’s not considered passive income. A second job is an active income because you’d still have to show up and complete certain job tasks in order to earn wages.
Assets Not Producing Income
If the assets you own don’t build interest or pay dividends, then they’re not considered passive income. Any non-dividend paying stocks or assets aren’t earning you passive income. They must build interest or pay dividends to be considered a passive investment.
If your main job is doing something that you have to put in the work in order to get paid, then your job isn’t considered passive income either. This is active income and not an investment earning money without you having to put in the physical work.
Why Passive Investments Could Be Right For You
Passive investments are beneficial for several reasons. One of the most popular reasons being you put in the majority of the work upfront and then sit back while your investment earns you money over time. Although you still have to put in some work here and there, you’re not actively involved in it.
Here are three reasons why passive investments could be the right choice for you.
1. Lower Fees
Passive investments have low upkeep and negotiable fees. These types of investments also won’t incur costs associated with various trading fees. Depending on what type of passive investment you choose, you could be looking at an expense ratio below 0.2%, which is much lower than active investments.
2. Saves Time
One of the greatest benefits of passive investments is the amount of time you save when choosing to go this route. For example, with an index fund, you can set it up and then allow it to grow money without you having to lift another finger. You’ll most likely see some highs and lows during the market cycle, but this is normal and a longer-term trend will yield good returns.
3. More Stability
When choosing to look into passive investments in the stock market, you’ll have more stability. For example, index funds have a high number of asset distributions and investors. This helps keep them more stable during various market trends, which can give you peace of mind in return.
Passive Income/Investment Ideas to Consider
The stock market isn’t the only place to look for passive investments. There’s a variety of passive investment options to consider and choose from. Read through a couple of examples before deciding which ideas might be best for you to invest in.
Although you can consider renting out residential or commercial properties as a form of passive investment, there will be a lot of work involved with the upkeep of these properties. Passive real estate investing involves placing capital into a real estate venture that you won’t have to actively manage or maintain.
How can you passively invest in real estate? There are a few ways to do so, such as purchasing stock in a business that’s related to real estate. You can also make your own investments in real estate deals or invest in Real Estate Investment Trusts (REITs). This option allows you to earn money through real estate without being in direct contact with tenants or properties.
Affiliate marketing is a good way to earn money without having to take many extra steps as you normally would when creating online content. Here’s how it works. A website owner, a blogger, a social media influencer, or another type of online creator places links in their content that directs visitors to a third party’s product or service.
If a visitor clicks on the link and makes a purchase, the person who owns the content (who included the link on their page) will then earn a commission. Commission rates will vary, but once you create your content and include your affiliate links, you can begin earning passive income. Keep in mind that the traffic flow to your page or content will determine how many visitors are on your page and how many people click on the link.
Get Started With a Passive Investment Today
You can get started with a passive investment today by following all of the helpful information given in this guide above. Remember the difference between active investments and passive investments to get started. Then, consider all of the different forms of passive investments to determine which option might be the best for you.
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