6 Passive Income Streams That Are Truly Passive
If your idea of an ideal existence is to sit back and let all your passive income fund your life, then you are not alone. Not by a long shot, friends. We created this website with the sole purpose of helping educate people on how to create more passive income streams and achieve financial freedom. Because as fun as trading our time for money is, we don’t want to do it forever.
Now, we have discussed creating passive income streams before, however, a lot of them start out as active income streams. Things that take actual physical or mental labor to create or maintain.
Today, we want to go through the list of passive income streams that should take less than 1% of your time to deal with. Not 4 hours per week, literally one hour every three months. And maybe even less than that. Oh yes, we are talking about income generating assets!
Before we start, it could be argued that owning and renting physical real estate is a passive investment. It definitely is mostly passive. But having to deal with a management company and paying for any issues that my arise (broken toilets, faulty boilers, floods, etc.), it can be more active than most people like.
That said, everything on this list is as passive as passive income gets. Just the way we like it!
6 Passive Income Streams That Are Truly Passive
CDs/Savings Accounts
We said this list is truly passive, but we didn’t say every income stream would make you rich. We do promise that the yields get better as the list goes on. We swear!
Gone are the days when you can get high yields on CDs or savings accounts, but if you need to park your cash somewhere with zero volatility or risk, look no further than a high yield savings account or a short term CD. If you’re looking to open a new savings account or CD you can use a service like SuperMoney to compare offers from financial institutions to find one with the highest yield and lowest minimum balance requirements.
Bonds
Good old, trustworthy bonds. They aren’t as flashy or as fun as some of the passive income streams below, but they are a staple in any balanced portfolio. And when times of economic uncertainty might rock your other investments, bonds can provide a steady stream of income.
The current risk-free 10-year Treasury Rate is 1.56%, compared to 0.66% last year. Although almost three times higher than last year’s yield, the current rate is much lower than the long-term average of 4.36%.
The biggest risk with bonds is the future of interest rates. If rates remain extremely low, bonds are no more reliable than parking money in a CD or savings account.
If you are looking to add bond exposure to your portfolio, Vanguard’s Total Bond Market ETF (BND) is a great place to start.
Peer-To-Peer Lending (P2P)
The allure of Peer-to-Peer Lending (P2P) is that it can boast much higher returns – 10-20% at times — than some traditional forms of investing. PSP is a great option for anyone who doesn’t shy away from a little more risk and who is also looking for a high yield.
Most P2P loans mature over a 3-5 year range, so you can create your own portfolio of loans that can drive you monthly income for years to come. With P2P, the notes you choose can be catered to your specifications and requirements. Meaning you can pick notes based on loan term, loan type, debt-to-income ratio, and credit-score range. This will give your portfolio as much or as little risk exposure as you’re looking for.
The glaring issue with investing in Peer-To-Peer Loans is they are A) very illiquid and B) unsecured and susceptible to default. Most P2P platforms carefully vet potential customers, but defaults — especially in times of economic uncertainty or a global recession – can happen.
Dividend Stocks
There’s a lot of division in the investing world on whether or not you should invest in dividend stocks or growth stocks. It all depends on your goals. However, there is no reason you can’t do both. And if you’re investing in mostly ETFs, there is a good chance that you are investing in both. Hooray for you!
Whenever you invest your money through an ETF or dividend-paying company directly, you will receive dividends on a quarterly or monthly basis. This is a way for the company to reward the loyalty of a shareholder. And if you invest in the best dividend ETFs (see: high yielding with proven year-over-year returns), you will be rewarded. Handsomely.
According to Brett Owens, a Forbes contributor, dividend investors have the potential to earn an annual return between 15% to 25%. This is because the best dividend stocks don’t just pay you, the share prices also grow as time goes on.
Check out Public or M1 Finance if you want to open your own brokerage account. These two are the ones perfect for beginners.
Private Equity
Admittedly, not everyone has the assets or accessibility to participate in private equity investing. But if you can find the next Coinbase or Slack, a simple $10,000 investment could put you on the fast track to retirement.
If you want to use private equity to generate passive income, you should look to put your money into credit hedge funds, real estate funds, and private company funds. Again, access to these funds usually come with fairly sizable minimum investments, but most of them provide regular passive income distributions. They are also have set lockup periods, which make them more liquid than simply sourcing individual investments on your own.
Real Estate Crowdfunding
Did we save the best for last? Well, that is up for debate, but real estate crowdfunding certainly seems like it is here for the long haul. Thanks to companies like Fundrise, RealtyMogul and CrowdStreet real estate crowdfunding has exploded.
The beauty of working with the likes of RealtyMogul or CrowdStreet is the yields are much higher than you’ll receive through dividend stocks. And although your investment is mostly illiquid, the due diligence these firms do on their investors’ behalf far exceeds what you can do on your own.
Just how thorough is the due diligence process? Per the RealtyMogul website, since the company’s inception 10 years ago, the platform has received over 30,000 real estate deals submissions and they have only accepted 337 of them.
There you have it. All that is left to do is invest wisely and watch your money make even more money.