The following list of some of the more popular passive income strategies should not be construed as financial advice. These ideas are in no certain order and we are not endorsing any of these investments. There are numerous strategies outside of these listed below. You should work with your own financial professional to determine the strategies that are right for you and your financial situation.
“You’re not making money until you’re making money when you’re not working.”
– 50 Cent, Rapper and Entrepreneur
There’s a growing trend among young professionals: FIRE — Financial Independence, Retire Early. The idea is to save large portions of income and retire in your 40s or 50s, if not sooner, to escape the rat race of office politics and work. But saving up all your money and effectively sticking it under the mattress will take quite some time, and it's not likely to offer the financial security you want. So, what can you do?
You can make your money work for you. By investing in building passive income streams, you could have money flowing in even as you travel the world, explore your hobbies, or pursue your passions.
Passive income is any income that doesn’t require a regular investment of your time and energy. If you can build diverse enough streams of money, passive income can supplement your regular income and even comfortably support you through your retirement years.
While the title, “landlord,” might not sound attractive, being a landlord can be very profitable. A rental property can earn you income while you’re half the world away through monthly rent.
There’s some effort involved in setting up the rental such as identifying good property, finding tenants, and drafting a lease. Still, although you’re responsible for ensuring the property stays in livable condition, rental properties tend to take very little time to manage and maintain.
If you don’t have any time to invest in your rental property, you can outsource to a property management company — property management companies will take either a fixed fee or a percentage of the rent to maintain your property, handle accounting, and deal with renter issues.
Once you’ve established a rental property, you can use the income from the property to purchase a second property and so on. It usually takes three to six months after purchase to find renters, and the returns from rental properties vary widely depending on the type of property and location — though if you buy smart they generally hover around 10%.
Bonds are not just for older people approaching retirement; although they have traditionally been marketed to the elderly crowd as a way to reduce risk while getting solid returns, the bond market has expanded.
Bonds are loans to companies or public entities. When you buy bonds, you generally receive regular interest payments with a balloon payment of the borrowed amount at the end of the bond period. You can purchase bonds through a stockbroker, just like with other market investments.
Bonds have historical returns of 5–6% and are generally thought to be less risky and volatile than stocks. Though they require research and are not without risk, they can be a solid choice for generating passive income. For instance, Small Business Bonds™ allow investors to earn money from interest payments while supporting small, local businesses; this type of bond is a new asset class that lets you create a passive income stream, earn up to 10% returns with monthly interest and repayment of principal,* and support the local economy. Unlike bonds with balloon payments, Small Business Bonds™ let you reinvest your funds quicker and start compounding your money.
Affiliate marketing involves companies paying you to include links from your website to their business or product — you are set to receive a portion of the income from the product or service sales that come from your website.
Affiliate marketing requires some initial investment — a website and content to drive traffic. However, it’s possible to outsource content writing and web development to create a truly passive income stream.
Before launching an affiliate marketing website, investigate companies. Find one you believe in and investigate what kind of market share they give their affiliates. You will need to monitor your visitor and affiliate metrics to ensure your content stays relevant and continues to drive website traffic.
Affiliate websites take some time to set up, but you can be up and running within a few weeks. Because the websites take very little upfront investment, the returns can be very high. This investment strategy is usually less passive than other types of passive income investments.
Peer to Peer Lending
Why should banks be the only ones that collect interest? You can be the bank — well, sort of.
While it used to be that if you wanted to borrow money you had to ask a bank for a loan, the internet has opened doors for people with money to lend to folks who need it via peer-to-peer (P2P) platforms. P2P lending websites act as middlemen, matching people, performing credit checks, and taking their cut. Investors bid on the loans they want to fund and usually spread their investments over multiple loans to create portfolios of partial loans.
Since websites generally complete and disclose credit checks, you can make investments based on your personal risk tolerance and long-term goals. Loans made to folks with lower credit scores will charge higher interest rates, but they can come with greater risk that the borrower will default.
You can start lending on P2P lending sites within a few days — once your application has been approved and you have funded your account. Most investors earn returns of approximately 10% after accounting for defaults and late payments.
Sell a Product Online
Forget working for the man. You can become “the man” (or woman or person) by selling your own product.
To sell a product online, you (obviously) need to create or obtain a product. The easiest way to sell items online is to use online marketplaces that market, ship, and store products for you. Unfortunately, most big-name marketplaces will take a large percentage of your sales.
You can set up your own website and hire staff to fulfill orders on your behalf. Your own ecommerce site can take a long time to set up and grow traffic, but you have the potential for enormous returns without losing huge percentages of your sales.
You have the opportunity to make your money work for you. Building passive income streams can earn you money and save your precious time. While no investment is without risk, by creating diverse passive income streams, you may weather uncertainty and feel more financially secure as you move through life. No matter what method(s) you choose, passive income can support your path to financial freedom.