Once you have a secure job in the career of your choice, it is time to start thinking about the future and look for investment opportunities. You need to do more than just save money; you need to get your money working for you. Investments generating passive income offer a safety net in case of future job loss and may even lead to a possible early retirement. So, what is passive income? Simply put, it is a way of generating income using money instead of working in a job. Bankrate.com states that passive income comes from a source other than an employer or contractor.
Passive income is highly sought after and often misunderstood. It requires an upfront investment, hard work, and a lot of nurturing in the beginning. After putting in time and effort, passive income streams start to build and are able to maintain themselves, bringing you consistent revenue without much effort on your part. Depending on your knowledge, experience, and comfort level, you can pick the passive income stream which suits you the best. Let’s explore some of these streams here:
Annuities
One of the best-suited options for generating passive income is annuity contracts. Annuities are contracts that you purchase from an insurance or annuity company with either a lump-sum payment or installments. Eventually, your money will earn interest, and you’ll start receiving monthly payments. Once the annuity has been purchased, there’s no need to participate actively. Compared to stocks, bonds, CDs, etc., annuities offer benefits beyond the income they generate such as tax-deferral and premium protection.
Dividend Stocks
You can invest in dividend stocks of a company that distributes part of the company’s earnings to investors on a regular basis. Dividend stocks typically are less volatile than growth stocks and help diversify your portfolio. Investors can also choose to reinvest dividends. You will have to do plenty of research to find good stocks and invest a significant amount of money to receive large dividend checks. However, if you consistently invest money into dividend stocks you can amass a nice residual income over time. NerdWallet compiled a list of 25 stocks with the highest dividend yield.
Bonds
A bond is a loan to a company or government that pays investors a fixed rate of return over a specific timeframe. In simple terms, a bond is a loan from an investor to a borrower such as a company or government. The borrower uses the money to fund its operations, and the investor receives interest on the investment. The market value of a bond can change over time. Bonds are a key ingredient in a balanced portfolio. It is a fixed-income instrument and can help absorb the risks in a diversified investment portfolio. Here’s a guide to learning how to buy bonds.
High Yeilding Savings Accounts or Certificates of Deposits
If you are lookingto minimize the risk of your investment without putting in much effort, high-yielding savings accounts or certificates of deposit (CDs) are one of the best options to go for. Here you earn returns in the form of interest earned which gets deposited in your account. They are generally backed by FDIC (Federal Deposit Insurance Corporation) which means your principal amount is insured by the government. As they have minimum risk, the returns are less as compared to stocks and bonds. Nevertheless, a CD or savings account will yield better than holding your money in cash or in a non-interest-bearing checking account where you will receive nothing.
Rental Properties
Rental properties generally require a higher upfront investment to start generating a regular stream of income. If you have a good amount of accumulated funds, real estate investments can open avenues of income generation. You can be a limited partner in large residential or commercial properties, or you can buy homes and be a landlord. You can also merge earnings from other passive investments to buy a property turning it into a rental property. A cash-flowing rental property is a fantastic way to bring in a monthly income. To make this truly passive you can outsource the running of the properties to a management company.
Defynance ISA Credit Fund
Defynance offers investors seeking passive income an opportunity to invest in fellow Americans by eliminating their student debt through the Defynance ISA thereby making an impact without compromising returns. Plus, there are tax deferral benefits, and the returns are much higher than typical fixed-income investments without sacrificing lower risk and volatility. Investing in income as an asset can also be a hedge against inflation, market volatility, and interest rates because income has proven to be stable and growing even during recessionary and unstable economic times. Finally, investors have an option to defer taking income by reinvesting it in more Fund shares. This allows them to make passive income in the future when they need it most, like during retirement. Learn more at the Defynnance ISA Credit Fund site.
Approach your financial or investment advisors to discuss the above options before making any investment decisions.
