The Best Passive Income Investments

Dec 26, 2023 By Triston Martin

One of the best things about passive income investments is that they allow you to take a step back from actively trading or worrying about your portfolio. They offer you a sense of security, which can be comforting if you are someone who hasn't yet reached their financial goals.


We're going to show you 5 different passive income investments that have been successful in the past and might work for your current situation. Hopefully, these suggestions will give you some ideas on how to build up your fortune and achieve financial freedom!


1. Real Estate


How it works:


In general, every time a real-estate owner buys a property and rents it out, he is leasing that land out for passive income. The lease can be written for as long or short of a time as the owner wants. If someone agrees to lease his land for $500 per month and then refuses to leave when the lease is up, then he's forced to pay rent until he moves out or is evicted. This is one example of how real estate investing works.


Pros:


Landlords make money if they manage their rental properties properly. The rent keeps coming in whether they are managing their properties or not (since something always breaks). Property management is a key skill for landlords to use and can be very lucrative if done correctly.


Cons:


Landlords get stuck with the problems of maintenance, upkeep, and security that come with their rentals. Rent collections can be hard if tenants aren't reliable, and it's easy to end up in a situation where you have tenants who pay a little late here and there but never actually move out. It takes a lot of time to manage properties effectively (unless you have employees that handle this for you), so investing in real estate beyond your primary home may not be worth it.


2. Real Estate Stocks



How it works:


Real estate investing is the big daddy of passive income investments. However, like many things, there are many different variations on this theme. There are companies that allow you to invest in a handful of real estate stocks (VALIS) or even start your own real estate investment trust (REIT). You can also do it yourself, by purchasing real estate. For example, you can buy a property and then sell it for a profit later on. Or you can hold onto the property until you either die or sell it at a profit.


Pros:


Real estate stocks offer investors a nice way to enter the market and gain exposure to the stock market. You don't need to know anything about real estate investing to make money off of the stocks. And you can often invest in a few stocks without needing a huge amount of money.


Cons:


This has been incredibly volatile in the past, putting it on our list of volatile investments. However, recent market conditions have made this far less risky than it once was.


3. Bond/Stocks Ladders


How it works:


A bond ladder is simply a way to buy bonds that mature at different times. For example, if you have $10,000 and you buy four bonds with $2500 each, they will all have different maturity dates. So some of them will mature in 3 years while others will mature in 5 years.


Pros:


A bond ladder is a great way to keep your money safe over the long term. And if you do this with stocks, you can earn a lot of dividends from your stocks as well.


Cons:


You have to pay taxes each time the bond matures. This means that if you buy bonds and wait for them to mature, you have to pay taxes on the interest rates each time one matures. If your bonds aren't earning much, this can be quite an amount of money.


4. Dividend reinvestment plans



How it works:


Dividend reinvestment plan (DRIP) is a form of investing in which you use one stock to purchase more stock. For example, if a company's dividend is $1 per share, the company will let the investor buy more shares with this $1. This is a great way for investors to grow their dividends without ever having to set aside extra money.


Pros:


A DRIP allows investors to purchase more stock without ever having to save. This can be quite helpful for investors who are using their disposable income to invest but don't have any extra cash on hand.


Cons:


Buyers have to pay a commission for every stock purchased (if commissions aren't free), so it's a much better deal for investors who are earning a lot of dividends. Also, since it's not part of the annual dividend, there is no guarantee that the company will continue to pay a dividend annually.


5. Investing in a Business


How it works:


You can invest in different aspects of businesses, including stocks and bonds. This is essentially like investing in a normal company. But you can also buy into a business and get some ownership over the company itself, which means you'll have to be careful about how you run the business so customers will want to keep coming back!


Pros:


Investing in companies is a great way to get more money from your money without ever having to put anything extra down. It's basically like having dividends on your dividends if the company has lots of profit, which happens frequently with fast-growing companies.


Cons:


There are quite a few drawbacks to investing in specific companies. For one thing, it might not be worth it if you're investing a lot of money into a company; this is the case for big companies like Google, which has an enormous market cap and could lose your entire investment if they make the wrong move. Also, you won't get any interest rates or cash back like with bonds, so it's quite risky.

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