You can work very hard to make money but you will not get anywhere until you start to earn money through passive income. It is a highly sought after but often misunderstood concept.
Passive income streams require an upfront investment and putting some effort at the beginning. Once a stream is set up, it will bring you consistent revenue without much effort to maintain it. For this type of income, you don’t have to trade your time for. That’s the only true way to financial freedom.
Passive income streams help you increase your earnings and speed up your financial goals in tremendous ways. Don’t get me wrong. This is not a get-rich-quick scheme where you just press a button to become a millionaire. It always requires some amount of research, work and money to invest upfront but then it means getting thousands a month you can count on.
I’m going to share my four favorite passive income sources in 2020. Thanks to them, I make money every month: Financial Instruments, Crypto Currencies, Real Estate and Online Business.
Stocks are fractional pieces of publicly traded companies. If you own a company’s stock, you own a piece of that company. A dividend is the distribution of reward from a part of the company’s earnings and is paid to a class of its shareholders. Companies issue dividends as cash payments, as shares of stock, or other property, though cash dividends are the most common.
Dividend stocks is a proven way to earn passive income. You will have to do plenty of research to find good stocks and invest a significant amount of money to receive large dividend checks. Yet, if you invest money into dividend stocks you can get a nice residual income over time.
Mutual funds are baskets of stocks or bonds. They come in all different shapes and sizes, from covering broad stock market indexes to focusing on specific sectors. The basic idea is to diversify your investment to reduce the risk of investing into an individual stock. If you want to understand a mutual fund, you need to know:
- what it invests in
- who its portfolio managers are
- how the costs of the fund compare to other alternatives, such as ETFs.
Exchange Traded Funds (ETFs)
An Exchange Traded Fund (ETF) is a type of security that involves a collection of securities. These can be stocks for example. ETFs often track an underlying index, although they can invest in any number of industry sectors or use various strategies.
ETFs which track an underlying index, are called passively managed. They cost a lot less in management fees compared to actively managed funds. Actively managed funds need a team of people which researches and decides on investments. ETFs are in many ways like mutual funds; but they are listed on exchanges and ETF shares trade throughout the day like an ordinary stock. I prefer ETFs over mutual funds, as the fees are lower and most of the times they even beat mutual funds’ performance.
Robo advisors are digital platforms that provide automated, algorithm-driven investment services. They need little to no human supervision. A typical robo advisor collects information from clients about their financial situation and future goals. This is done through an online survey. The robo advisors use the data to offer advice and automatically invest client assets. Often they automate and optimize passive indexing strategies. In other words, you invest in ETFs in an automated fashion.
I am pretty sure you have at least heard once about Bitcoin. Even renowned magazines such as Forbes write about the enormous potential they see in Bitcoin.
Apart from Bitcoin, there are altcoins. An altcoin is any digital cryptocurrency similar to Bitcoin. The term is said to stand for “alternative to Bitcoin” and is used describe any cryptocurrency that is not a Bitcoin.
In cryptocurrency networks, mining is a validation of transactions. For this effort, successful miners get new cryptocurrency as a reward. Today, miners have to invest large sums of money on employing ultra high performance computers. Thus the mining reward often does not justify the amount of money spent on setting up the machines and electricity. This is only worthwhile for real crypto professionals.
There are more and more traditional funds coming to the market which allow you to invest into cryptocurrencies easily. If you believe in the huge growth potential of cryptocurrencies you might want to open a crypto trading account.
CoinMarketCap provides good information for research of the cryptocurrency you want to buy. This is how it works: you transfer money to your trading account and then you can start buying your favorite cryptocurrency. I have set up over 20 accounts with different cryptotrading brokers over the years. My personal favorite which I trust is still Kraken.
You can trade short-term which means you buy and sell within a few days. Or you can HODL and buy and hold for a longer time. In that case, I would recommend you get yourself a local wallet application for the cryptocurrency you are holding. It is better to store your assets locally rather than leaving them for months or years in your trading account. Be aware that this is an advanced approach.
To own a rental property is a fantastic way to bring in a regular monthly income. Especially these days when the interest rates are close to 0%. If you want to bring it to the next level and make it truly passive, you can even outsource the running of the properties to a management company. Depending on your situation and current budget, this requires quite some capital that you need to invest.
You do not want to be a landlord, but still want real estate exposure and income? Then consider becoming a limited partner in a large development / crowdfunding. You get the income and tax treatment just like regular real estate ownership, but you don’t do any of the work!
Or you could also invest in stocks of Real Estate Investment Trusts (REITs). These are companies own and typically operate real estate which generates income. Most REITs specialize in a specific real estate sector, focusing their time, energy, and funding on that particular segment of the entire real estate horizon. Diversified and specialty REITs often hold different types of properties in their portfolios.
Selling Products or Services Online
There are many ways of selling your products or services online:
- Auction platforms such as eBay
- Amazon for products only or Amazon FBA which includes the storage and shipping
- Your own shop on Shopify
- Your WordPress site, powered by a plugin like WooCommerce
If you want to learn more about how to start and grow your online business and sell your products and services, check out this free video series.
Affiliate Marketing is the practice of partnering with a company (becoming their affiliate) to receive a commission on a product. This method of generating income works the best for those with blogs and websites. Even then, it takes a long time to build up before it becomes passive. Here are some examples of affiliate programs which you can join:
If you want to learn more about how to start and grow your online business and become a successful affiliate marketer, check out this free video series.
Cashback is based on affiliate marketing. A cashback site gives you a percentage discount on anything you buy online. This could be anything – books, food, online courses, hotels, concert tickets and much more. Here are two cashback sites I recommend:
- Link-O-Mat supports about 9’500 registered online shops and offers a browser extension
- TopCashback supports about 4’000 online shops
Learn more about setting up a profitable online business system for passive income. Start and grow a business that you love!