There are 3 ways you can make passive income right now, and it is all in the stock market. Why? Because cash is king and stocks are the closest assets you can get to cash. The barrier of entry is low as you can start investing with any amount of money. You can also easily sell your stocks to redeem cash. Today we will look at individual stocks, real estate investment trusts (REITS), and Index Funds.
As with any investments, you are at risk of losing it all, although it is unlikely to happen if you invest in good companies or diversify with index funds. Also, you will have to pay taxes on your dividends.
Passive income comes in the form of dividends, or cash payments paid out by the company to its shareholders. When you reinvest those dividends, your dividends will pay you additional dividends. This my friends, is called compound interest.
And according to famous rich guy Warren Buffett, “Compound Interest is the 8th wonder of the world.”
For those of you who like to feel involved with the investment process and want to pretend like you’re an owner of these companies, buy individual stocks. I am in this camp. Companies like Microsoft, Disney, Pepsi, and McDonald’s all pay a dividend. Buy these stocks are reinvest the dividends and maybe one day you can afford a 3-Day Carnival Cruise Trip to Tijuana.
If you like to see more cash flow coming in, and like the idea of owning property when you cannot afford to, then Real Estate Investment Trusts (REITS) might be for you. REITS own properties and must pay out at least 90% of their taxable income as dividends to shareholders. This means that many REITS pay a higher dividend than individual stocks, but you will pay more in taxes. Companies like Public Storage and Simon Property Group are considered as REITS. If you really want to juice your dividend payments, consider investing in Mortage REITS like Annaly Capital Management with a whopping 12% annual dividend. Please keep in mind that Mortgage REITS are more risky than property REITS.
Finally for those of you who are smart and humble you can buy a low cost index fund. An index fund is basically a basket of stocks. A share of Vanguard S&P500 fund gets you shares in 500 different companies. Here’s the kicker, people who invest in index funds beat individual stock pickers 80 of the time.
To be fair, I own mostly individual stocks and REITS and a tiny portion of index funds that I actively root against in desperation to prove that I am smarter than the market. Long story short, I am not.
I own shares of DIS, PEP, NLY, & VFIAX.
As with any investments, you are at risk of losing it all, although it is unlikely to happen if you invest in good companies or diversify with index funds. Also, you will have to pay taxes on your dividends.
Passive income comes in the form of dividends, or cash payments paid out by the company to its shareholders. When you reinvest those dividends, your dividends will pay you additional dividends. This my friends, is called compound interest.
And according to famous rich guy Warren Buffett, “Compound Interest is the 8th wonder of the world.”
For those of you who like to feel involved with the investment process and want to pretend like you’re an owner of these companies, buy individual stocks. I am in this camp. Companies like Microsoft, Disney, Pepsi, and McDonald’s all pay a dividend. Buy these stocks are reinvest the dividends and maybe one day you can afford a 3-Day Carnival Cruise Trip to Tijuana.
If you like to see more cash flow coming in, and like the idea of owning property when you cannot afford to, then Real Estate Investment Trusts (REITS) might be for you. REITS own properties and must pay out at least 90% of their taxable income as dividends to shareholders. This means that many REITS pay a higher dividend than individual stocks, but you will pay more in taxes. Companies like Public Storage and Simon Property Group are considered as REITS. If you really want to juice your dividend payments, consider investing in Mortage REITS like Annaly Capital Management with a whopping 12% annual dividend. Please keep in mind that Mortgage REITS are more risky than property REITS.
Finally for those of you who are smart and humble you can buy a low cost index fund. An index fund is basically a basket of stocks. A share of Vanguard S&P500 fund gets you shares in 500 different companies. Here’s the kicker, people who invest in index funds beat individual stock pickers 80 of the time.
To be fair, I own mostly individual stocks and REITS and a tiny portion of index funds that I actively root against in desperation to prove that I am smarter than the market. Long story short, I am not.
I own shares of DIS, PEP, NLY, & VFIAX.
