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Among potential investors, there is an inaccurate perception that a passive investment means you do nothing. Instead, a passive investment strategy is as much a mentality as it is a mechanism for building your nest egg. What’s more, if you’re a business owner, building a passive income stream is necessary for your secure retirement.
It is true that the ultimate goal is to earn in the future on past work. Still, you’ll need to put forth effort in order to set up a passive income stream. So, what is passive income and how do you set up a passive investment strategy? The following insights will help you understand how to get ahead using an income stream that works for you.
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It is also true that a passive investment strategy doesn’t need as much active effort on your part as going to work or starting a business from scratch.
For example, creating an online course or publishing an eBook is a good business idea in theory. However, such ventures require more work and way too much time to be considered a passive activity.
On the other hand, the following passive income ideas require little maintenance once you have launched them. They are excellent options for business owners who are already overworked and overextended.
Finding a Passive Investment Strategy Vehicle
In order to set up your passive income stream, you must first find a way of generating income that is meaningful for you. Your passive investment strategy should be something that is compatible with the time and energy you have available.
Investing in Rental Property
Some people choose to invest in rental property as part of their passive investment strategy. However, if you decide to invest in rental property, you must find a property management company you can rely on.
An excellent property manager maintains the home and deals with tenants. Of course, this could result in your losing a portion of your passive income. On the other hand, a good property manager will ultimately save you expenses and add to your profit.
However, if you don’t have the necessary capital to invest in a second property or additional mortgage, investing in rental property may not be the best decision for you and your family.
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Basing a Passive Investment Strategy on the Stock Market
One of the easiest options for having a passive investment strategy is taking advantage of compound interest. Set up a secondary investment account, such as a Roth IRA. Maximize your contributions by paying taxes when you contribute to rather than when you withdraw from your investment accounts.
If you’re currently at a lower tax bracket, this is especially important. Most people can expect to make more money in the future. Therefore, contributing early to your Roth IRA not only earns you money, it saves you money. Building on compound interest over time is a simple and effective way to watch your money grow exponentially over the next ten or twenty years.
Saving in Traditional Accounts
Also worth noting are more traditional ways of saving. For extremely conservative investors, there are many such passive income ideas that may fit your investment style. Keep in mind, however, that interest-earning bank accounts, such as a savings account, won’t offer you the same sort of returns or interest rates as the stock market.
Still, it’s not a bad idea to keep some money in a high-yield savings account while you maintain your other passive investments. Consistent saving combined with stock investing will help diversify your portfolio. When you do this, you maintain multiple passive income sources, ultimately providing more cash flow.
Strategizing Your Passive Income for Success
Once you’ve determined what sorts of investment strategies you’re going to use to generate passive income, it’s time to get to work. And by work, we mean finding a few spare minutes outside of running your business to ensure your bank accounts and portfolio are set up properly.
Thankfully, the Internet makes it easy to automate your investment or savings strategies. Automatically send monthly or even weekly payments to wherever you’re investing in the market. Even setting up an extra $100 to invest each month can ultimately provide you with a lot of extra income once you start withdrawing your stock dividends.