Passive income is a great way to boost your total income. But you may not know how to generate passive income. In this article, I will give you some passive income ideas that can help you get started.
Generally, income can be divided up into two different kinds: active and passive income streams. Active income is what you get from your primary work or job, and it involves an ongoing stream of work and effort from you.
On the other hand, passive income is different. It will require some work upfront, but the idea is to set it and forget it. It should continue to earn you income without much further maintenance.
What Is Passive Income?
When many people have ideas about passive income they think that it means you do no work. This is wrong. When you earn passive income, you are going to have to do some work upfront. And this usually involves some time or money (or both).
On the other hand, it won’t involve continued work forever, nor will it involve nearly as much of your time or effort as your primary job or career.
Passive Income is income you earn with minimal maintained effort. After your initial investment, you should be able to rest easy while continuing to generate your income.
Now that you understand passive income, let’s dive into some passive income ideas. Hopefully, you will find these passive income ideas helpful in increasing your total income.
Five Passive Income Ideas
1. Dividend Stock Investing
My favorite passive income idea is dividend stock investing. The average yield on a dividend stock is 2.2%. While this may seem like a small amount, if you invest enough capital it can supply a nice chunk of change.
In addition to the actual dividends, you can also earn even more money from capital appreciation if the stock price goes up. Another important part of passive dividend investing is setting up a dividend reinvestment (DRIP) plan.
When you set up a DRIP plan, the dividends you earn from your dividend stock automatically get reinvested. Over time, this can lead you to create a lot of wealth.
If you want to learn more about dividend investing, Investment U’s dividend guru Marc Lichtenfeld is a treasure trove of information on the subject.
In addition, my colleague Rob Otman recently wrote an article selecting the best dividend stocks right now. See why Walmart, Coca-Cola and eight other dividend stocks are your best bets for passive income right now.
2. Investment Grade Bonds
Another great passive income idea – and one with lower risk – is to invest in investment-grade bonds. These can either be corporate bonds or government bonds. Municipal bonds can also be an option with lower tax consequences.
Like stocks, bonds are investments in a company (or a government). But unlike stocks, bonds do not represent an ownership stake in a company. Instead, they are a debt vehicle, a loan to the company.
Bonds are less risky than stocks. This is because if the company goes bankrupt, bondholders get paid before stockholders do. Therefore, you have a better chance of getting your money back.
As a result, bonds generally earn a lower return than stocks over the long run. Still, bonds can be a good investment for generating passive income.
Another negative is that right now government bond yields are low. The 10-year treasury bond will only earn you about 0.6% on your money right now.
A third passive income idea is to invest in Real Estate Investment Trusts (REITs). REITs are companies that own various forms of real estate. But you can invest in them as you can invest in stocks.
And dividend yields in REITs can often be higher than stock dividend yields. So REITs can even be a more profitable investment, not to mention they are an easy way to invest in real estate.
Different REITs can also be focused on different types of real estate. For example, you can invest in REITs that focus on:
- Student housing
- Shopping malls
- Senior care facilities
- And more.
One issue with REITs right now is that the pandemic may be making real estate riskier. This may be more true in some areas than others – for example, you may want to stay away from shopping mall REITs until the dust from COVID-19 settles.
If you are interested in investing in REITs, my colleague Peter Bosworth compiled a list of some of the best REITs for 2020. But there are plenty of others on the market as well.
4. Write an eBook
Some passive income ideas – like the previous three listed – involve investing in securities that generate passive income. Another alternative is to find a side hustle that can generate passive income.
Writing an ebook on a topic you are interested in and familiar with can be a great way to generate passive income. The ebook market was recently estimated to be worth about $4.02 billion, and that number is only growing.
Once you write your ebook, there are different ways that you can sell it. For example, you can create your own website with an e-commerce store, which gives you a lot of control over how you can sell it.
On the other hand, there are other platforms that can host your ebook as well. Generally, this can expose you to a wider audience. And of course, the most famous platform for selling an ebook is Amazon.com.
One big decision you will have to make is how much to charge for your ebook. Better yet, if your ebook is well-written and becomes popular, this can earn you a boatload of passive income.
5. Develop a Podcast
Like writing an ebook, a podcast is a digital product that you can offer to generate passive income. But instead of a visual medium, you are now doing so in an audio one.
Deloitte consulting estimates that the podcast market will generate revenues of just over $1 billion in 2020. But as a high growth market they also say that it could be worth $3.3 in the next five years.
If you decide to create a podcast, you should do so on a topic you love and are interested in as well as one that you have some knowledge about.
There are different ways that you can generate revenue from podcasts. One way is by offering advertising space before, during or after your show. I can personally attest that I have purchased products based on podcast ads.
Another option would be to offer subscriptions to premium podcast content. You can get listeners to support your podcast by signing up for a subscription through Patreon or a similar website.
Concluding Thoughts on These Passive Income Ideas
Passive income should take up much less time than your primary job or career. But remember, passive income does not mean zero work or investment.
You will generally have to put in some work upfront. That could mean research, time, money or all three. But in the end it can generate very lucrative income streams to bolster your earnings.
If you are interested in learning more about ways to boost your income and earn more money, I urge you to sign up for Investment U’s free daily eletter.
There are many more passive income ideas that can earn you additional income. The five listed are just the tip of the iceberg.
And the more income streams you have, the better you off you will be at generating wealth.
About Brian M. Reiser
Brian M. Reiser has a Bachelor of Science degree in Management with a concentration in finance from the School of Management at Binghamton University.
He also holds a B.A. in philosophy from Columbia University and an M.A. in philosophy from the University of South Florida.
His primary interests at Investment U include personal finance, debt, tech stocks and more.