The Covid-19 pandemic has let a sense of monetary insecurity seep into everyone’s life. While a regular income from a stable job is a necessity, it is always prudent to diversify and increase your income sources. Unlike in the West, the people of India rely entirely on one source of income. And then these incomes are used to live hand-to-mouth. One common denominator you’ll find among all wealthy people is that they venture into investments for passive income. A saying that we all must have heard, ‘never keep all your eggs in the same basket, is especially true when it comes to money, income, savings, and investment.
Don’t fall entirely for the word ‘passive’. It is not that you can leave your money, forget about it, and let it double up. Even arranging for a passive income requires efforts from your end, albeit not as many as your primary source of income, aka your ‘job’ would. Wishfully speaking, if you had a tree to grow money on, you’d have to nurture it too. It is the same for earning through passive incomes. You have to nurture it, especially in the starting stages. There are two prerequisites for investing in passive incomes:
- A reasonable amount of money
- Time and research
Those who are always eager to learn and explore may find many ways to generate a side income or have a ‘side hustle’, as one puts it. But in this article, we elaborate upon the 3 best investments for generating a passive income. These 3 are the approaches that any professional would suggest and which every novice should know about.
The subject of stocks raises many eyebrows and causes a lot of inhibition, but it is genuinely one of the best ways of earning passive income. With information available everywhere and AI-ready to help you, considering an investment in stocks is extremely smart for future benefit.
You can buy dividend-yielding stocks, which will provide you with steady and predictable returns monthly or annually. As the companies generate profits, a part of the profits is given back to the investors (who bought dividend stocks). The investors can then decide to pocket the money or further re-invest it in buying more stocks. But purchasing these stocks requires a lot of research and effort. You have to pick not only a good stock but carry out a thorough investigation of the company you are investing in. The financial statements of the company should give you confidence. Those who are still confused and unsure should invest in a company with a Dividend Aristocrat label, that is, a company with a 25-year track record of paying out dividends.
If you aren’t interested in buying dividend stocks, you can invest in pure growth stocks. And then sell them after some time at an inflated price. Such stocks often see explosive price appreciation but require a long time to give you a substantial income. Robo-advisors or Robo-advisor consultants are on the rise these days. If you want a truly passive income and don’t wish to research or spend time reading up on companies, this can be your go-to. Robo-advisors are AI-based systems that allocate your money to buying stocks. You have to answer a questionnaire specifying your goals, needs, time preference, and even investment preference. Considering the Robo-advisor will buy your stocks and maintain your DEMAT account at a very minimal fee.
Investments are often synonymous with real-estate, and for a good reason. Real-estate can give you huge payouts on your investment. It can be a little more time consuming and tricky for a passive income. Thus, one should be extremely thorough with their research before investing in any property. After buying a property, you can rent it out, covering the monthly EMI or mortgage. As the rent starts to increase over the years, the property will start producing a positive cash flow. Also, remember that the price of the property will also rise over the years. So you will head towards gaining profit from two ends – price appreciation of property and net profit over rent. Another innovative investment that has come up recently is renting out on Airbnb. You can live in the same house while renting out a room or a floor to the Airbnb site and collect profits side by side. While real-estate is a type of passive investment, it does require more involvement. You’ll have to collect rent, maintain the property, get repairs done, and look after the upkeep. Nevertheless, this is an excellent proposition for a passive income.
While informally giving loans is very common, you can make a good income source out of it. Peer-to-Peer lending is a fairly new industry but has seen rapid growth in no time. Instead of going to banks or applying for a traditional loan, borrowers or business entities loan money directly from the lenders. P2P lending is loaning money directly to the consumer on high-interest rates, which results in high returns. Here the lender can choose whom they want to lend money to, take a check on their profiles and background of loan repayment. Also, the lender can spread out the investment by loaning a moderate amount at a higher rate of interest to different and various borrowers. This would help cut down on the risk involved. To make this process even and more formal, many online platforms have a proper structure to carry out peer-to-peer lending. Sites like PeerStreet, Faircent, LenDenClub, and Prosper are quite renowned online sites to invest your money in.
One can never be prepared enough for a rainy day; hence the importance of investment is rather high. A lot of people pull back due to the stereotypical image of losing stocks and funds. Investment, of any kind, indeed runs on a small risk. But so does everything else. Stocks, real-estate, and P2P lending are extremely interesting and highly practical methods of investment. With the correct approach, research, and investment, you can mitigate the risk and see an escalation in monetary terms.