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Passive Income Secrets You Should Know

passive income, written on paper

Passive income is money that you earn without too much effort on your part. It does not include employment income or income you may derive from a side business that requires significant physical or mental energy.

Passive income should require little or no daily effort to maintain.

That being said, you do have to do some initial work to develop a passive income strategy and set it in motion. Some may think that passive income requires little or no effort to set up. However, it does require planning and often an upfront investment.

Steps to Establish a Passive Income Stream

  • Set your expectations and/or needs.
  • Choose a passive income stream by researching the opportunities available to you. This usually requires the assistance of a financial professional to help match your expectations/needs to available platforms.
  • Decide on a platform that fits your needs, which could be investing or, owning a rental property, etc. Some of these may require greater upfront effort.

Passive Income Examples

Dividend-Paying Stocks

Perhaps the most popular way to obtain passive income is to invest in dividend-paying stocks. Some companies pay out a portion of their earnings as dividends on a monthly, quarterly or semi-annual basis. An added bonus is that dividend-paying stocks tend to be less volatile than regular stocks over the long term.

Fixed-Income Securities

Fixed-income securities (bonds) are loans you make to a company or a government entity. In exchange, you receive a regular interest payment called a coupon. You will receive these interest payments until the bond reaches maturity at which time you will get the principal you paid back. Bonds also actively trade on the fixed-income market, and you can usually sell your bond at any time before maturity.

REIT Investing

A Real Estate Investment Trust (REIT) is an investment vehicle that holds a pool of commercial real estate properties. REITs may hold a broadly diversified portfolio of properties both by geography and usage. They may also be very focused by type of property such as warehouses, shopping malls, office space, etc. The benefit of REITs as passive investments is that they must pay out a large portion of their taxable income to shareholders, similar to stocks that pay dividends.

Peer-to-Peer Lending

Peer-to-Peer Lending involves investing directly in a business that you believe will provide a future stream of income. This is usually done through a financial intermediary or lawyer that will match your criteria to that of a private business needing funding. This may involve some upfront expense for a risk and income assessment of the prospective business. Peer-to-peer lending is similar to private equity investing but on a smaller scale.

Choosing the Best Passive Income Stream for You

At Bloom Investment Counsel, Inc., for over 38 years, we have specialized in one thing: investing in income-generating investments, specifically dividend-paying stocks, which can help you generate income, if needed, and growth. We would be pleased to work with you and/or your other financial partners to share our expertise and provide a greater understanding of the benefits of a passive income stream.

This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.

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