Are you looking for other ways to make money or alternative ways to invest? We all have heard of the term passive income, but what does it really mean? In a nutshell, passive income is any income one earns without having to clock in hours. Here we will cover some ways to generate passive income without being actively involved in earning money. Before you start investing, make sure that you have enough money saved. Have a 6-month cushion of savings as it can guard against any unexpected circumstances such as unemployment or illness.
Investing in dividend-paying stocks.
Some stocks pay dividends every quarter. Dividend stocks are usually well-established companies with a history of distributing earnings back to shareholders. This is basically money from the company’s profits or cash reserves that is transferred to you every quarter. You can search for these stocks on any of the trade services you use. Companies in the utility and consumer staple industries often have high dividend yields.
Consumer staple industries are broken into six industries: beverages, food and staples retailing, food products, household products, personal products and tobacco. Many of the companies you are familiar with offer dividends. Do a quick search for these companies and add them to your portfolio. This is an easy alternative way to invest and yield passive income.
Fixed Income Bonds & Certificates of Deposits
Fixed income bond and certificates of deposit are considered safe investments with modest returns. They are low risk investments and are often viewed as an alternative to standard savings account. Fixed income bonds pay a defined amount on a fixed schedule. These interest payments are typically paid to the investor semiannually. The principal investment is invested is returned at maturity.
You are likely familiar with certificates of deposits (CDs). Certificates of deposits are very similar to a savings account and are available from banks and credit unions. Interest rates can vary depending on the length of the certificate of deposit. Generally, the longer the term the higher the interest rate will be at maturity.
Other examples include exchange-traded funds (ETFs) and money market funds. Exchange-traded fund involves a collection of securities that trade as a single unit throughout the day like an ordinary stock. They are various types exchange-traded funds.
- Bond ETFs might include government bonds, corporate bonds, and state and local bonds—called municipal bonds.
- Industry ETFs track a particular industry such as technology, banking, or the oil and gas sector.
- Commodity ETFs invest in commodities including crude oil or gold.
- Currency ETFs invest in foreign currencies such as the Euro or Canadian dollar.
- Inverse ETFs attempt to earn gains from stock declines by shorting stocks. Shorting is selling a stock, expecting a decline in value, and repurchasing it at a lower price.
Money Market Fund is a mutual fund that invest solely in cash and cash equivalent securities. Your principal investment is managed and protect by shorter maturity and minimal credit risk.
Make sure to pay attention to the terms offered and this is another easy way to earn passive income.
US Treasury Securities
US treasury securities are alternative to certificates of deposits. The interest rates are normally lower than your average certificate if deposits. There are four types of treasury securities: Bills, Notes, Bonds and Treasury Inflation-Protected Securities.
- Bills – these are securities that have a maturity date of one year or less.
- Notes – these have a maturity of 2 to 10 years.
- Bonds – these have a maturity of greater than 10 years, and as long as 30 years.
- Treasury Inflation-Protected Securities – these are treasury securities in which the government will increase the principal value of the security, based on the increase in the consumer price index (CPI) – in addition to paying interest on the securities.
When considering these alternatives, it should be noted that interest rates will vary. Bills typically will yield a lower interest rate. The interest rate for notes is higher than bills but generally lower than bonds.
Peer-to-peer lending is where you may individually loan money to a borrower with the lending platform acting as the go-between. The peer-to- peer lending takes the banker out of the equation. Generally, this yields a higher rate of return for the investor. This type of arrangement is also less expensive for the borrower. These borrowers are individual consumers or small businesses.
Make sure to read the terms of the loan you are offering and the interest rates you will receive. Also pay attention to how the lending platform address payment defaults.
Precious metals are another investment alternative. They tend to gain when the dollar is weak and fall when the dollar is strong. The most common examples of precious metals are gold, silver, platinum, and palladium. These metals are rare and can be a good way to diversify an investment portfolio. The primary benefits of investing in precious metals: demand and scarcity, liquidity, diversification, and safe haven against the dollar.
There are several ways that you can invest in real estate. Purchasing a second property is another good way to earn passive income. It can produce income through rents or capital appreciation. You get both rent and equity. The other option is to purchase distress real estate to rehabilitate. Once the rehab has been complete, you can flip for a quick profit.
Often investors will form limited partnerships. This is where you invest money in a real estate partnership that typically invests in commercial property, such as a shopping center, office complex, or apartment building. These are all income producing properties which can see large returns depending its market area and condition. This limited partnership will protect you against massive losses; you can lose no more than the amount you invested.
This involves more than the other options we have discussed so far as it takes work to be a landlord. However, you can always hire a trustworthy property manager. You also need to research market rates and a find a good location for your real estate. While there is hard work in the setup, it is worth putting the time and effort if you can afford to do so.
If you have an interest and want to learn more about investment options check out our other blogs posts here. We have a variety of investment/monetary growth blogs that can give you a leg up when you decide your next financial move.
Our advisors are ready to help you along your financial journey to maximize your earnings potential. Give us a call and set up your family finance appointment. We want to ensure you are on the right track for your best future.