Certificates of Deposit
Few investments are as free from the risk of capital loss than CDs. To earn passive income from a CD, you’ll have to first obtain a bit of capital. Some banks require as little as $500 to open a CD, while others will want savers to put more money away. CDs come with variable terms, generally from 30 days to five years. A longer term will generally lead to a higher interest rate, but there is the risk of lost purchasing power if the interest earned does not keep up with inflation.
Like CDs, investing in bonds requires some capital up front. Bonds come in a variety of denominations, and most brokerages have bond funds that have a lower barrier of entry. Bonds pay out a fixed amount of interest for a given period of time, and then the investor will get their principal back once the term is up. Bonds provide a steady stream of income, but when rates rise, the price of bonds goes down. In this instance, investors who want to sell before maturity could see a drop in the price their bonds will fetch.
The passive income that comes from real estate investing comes from the payment of rents to the property owner. Real estate investors can seek for residential or commercial properties. As long as an investor can find a good tenant, monthly rent payments should provide a steady stream of passive income. When the properties have a mortgage on them, the passive income will only grow when the property is paid off.
Stocks can also be a great source for passive income. Many companies pay out quarterly dividends to their investors. These dividend payments hopefully come from the income that a corporation can generate. Some companies have been able to grow their dividend payments for 50 years or more. This growing stream of dividend income is a great offset against inflation, and companies that grow their dividends tend to grow their income. Growing revenue and income generally leads to higher stock prices, and the capital gains are another source of passive income.
In the world of the Internet, it’s possible to create products that people will buy. A couple of leading options are courses that teach people a marketable skill or e-Books. There is work required to create the product, but once the word gets out, it could return a steady stream of sales if the product is popular. Those sales require no additional work on the part of the creator.
Passive income is the best form of income around. It’s possible to replace a working income as passive income grows over time. While it takes quite a bit of work to create the product or the capital that’s necessary to build a passive income, the benefits are well worth the effort.