5 Ways to Invest and Earn a Passive Income
Looking to make a little extra cash, but don’t have the time to commit to a side gig? Well, your other option is to find a passive income stream. According to Investopedia, passive income earnings come from any enterprise where a person is not actively involved. This can stem from several options, from a limited partnership to rental properties. Another option is to dip your toes into various financial markets. Though you’ll probably have to put some work in when you start, passive income streams can be extremely profitable in the long run. Here are five ways you can start:
1. Dividend Stocks
Dividend-yielding stocks are a type of stock where a company makes regular payments to a certain class of stockholders. Whenever the company generates profits, a portion of its earnings is distributed to its shareholders in the form of dividends. Yields vary depending on the company, so make sure to invest in a company with a good track record. This ensures that your regular payments don’t fluctuate too harshly. It might also be advantageous to read more about what makes a stock go up and down to get a full understanding before you invest in stocks.
2. Mutual Funds
If dividend stocks seem too risky of an investment, you can opt for mutual funds instead. The Finance Monthly explains that a mutual fund is a company that pools money from different investors. They then use the money to invest in securities, like stocks and bonds. These are often handled by an investment manager. And once the payout has been processed, you and the rest of the investors involved in the mutual fund get a piece of the profits.
3. Automated Trading
While day trading is often a full-time job, it’s also possible to get involved in financial markets more passively with automated trading systems. You need to open a brokerage or trading account and, fortunately, that’s the easy part. Opening a trading account with FXCM takes just three easy steps so you can start buying and selling currencies, indices, commodities, and even cryptocurrencies. Once setup many platforms support automated trading, while others allow you to input your own algorithms to execute trades automatically. Regardless of how you automate your trading, you can sit back and watch the software make money for you. Plus, you will take human error and emotion out of the picture and infuse more analytics into your trading practices.
4. High-yield Certificate of Deposit
High-yield CDs are time deposits where you allow a bank to keep your cash for a specified amount of time. It’s an excellent option for passive income since the arrangement has high interest rates. It’s also one of the safest investments available. The only downside is that once you’ve deposited money for the CD, you cannot use it. Otherwise, you’ll incur a penalty. That said, it’s best to avail of a CD when you aren’t too strapped for cash.
5. Peer-to-peer lending (P2P)
P2P involves lending your cash to third-party individuals or businesses through online platforms. While specifics vary from platform to platform, you can expect returns to range from 7% to 12%. P2P lending is becoming increasingly popular in the UK with the industry growing at a compound annual rate of 26.6% to reach £305.1 million in revenue this year. With more P2P platforms available this is a growing market that could be very profitable.And there you have it — five different ways to earn passive income. Remember: while it’s called “passive income,” you’ll still have to exert some effort setting things up. But once everything’s good to go, you’ll have an extra income source that won’t require too much supervision.For more personal finance tips, check out this article to learn ‘The Best Tips to Living Frugally in 2021’. From cancelling subscriptions to cutting down on impulse purchases, this list will tell you all you need to know.