Ranking the Best Passive Income Streams
To ensure you relax in the future, you need to work very hard first!
There was no way by which I could stay for more than 5 years in a brewing factory like International Brewery PLC. So, I became preoccupied with earning passive income beginning from 1998, the very year I got a college degree.
I’ve recently published posts on how to get started with a passive income stream in order to gain financial independence. Thus, I would love to rank the numerous passive income investments based on feasibility, return, liquidity, risk, and activity.
The rankings are somehow emotional, but they originate from my real-life experience in several attempts to earn multiple streams of passive income.
The journey is really long, but thanks to technology and innovation – which makes it feasible for anyone to create streams of passive income without limits.
Passive Income Begins With Saving
Literally speaking, spending is far easier than saving. Had it been that saving was that pleasurable, we wouldn’t have had any cause to learn more about the millionaires who eventually got broke.
The main purpose of saving is to keep enough funds in accounts in order to use for contingencies whenever we need it, without having to seek the financial assistance of anyone anywhere. What can be likened to financial independence in life?Absolutely nothing!
Ranking Numerous Passive Income Streams
Here are 8 major passive income streams to consider. Each passive income investment is ranked based on Return, Risk, Liquidity, Feasibility, and Activity. Each reference point will receive a grade of 1-10. The higher the grade, the better the rank!
- A Return grade of 1 implies that the returns are horrific compared to the safe rate.
- A Risk grade of 10 implies that there’s no risk at all.
- A Liquidity grade of 1 implies that it’s hard to withdraw your funds without being penalized massively.
- A Feasibility grade of 10 implies that anyone can do it.
- An Activity grade of 10 implies that you can step aside and earn income without doing anything.
1) Money Market / Certificate of Deposit (CD)
There came a time ago when CDs would generate a considerable 5%+ interest. These days, you’ll be fortunate to get a 4-7 year CD producing anything above 3%. The awesome thing about CDs is that there are no net worth or income minimums to save, unlike alternative streams, in which investors have to be accredited.
Anyone can get in their local bank and begin shooting a CD of their chosen duration. In addition, money market accounts and CDs are insured by FDIC for an amount of $240,000 for each individual and $480,000 for more than one person using an account.
Everyone has to leverage higher short-term rates and invest more. Recently, CD rates and money markets were only 0.1%. And this time around, you can obtain a digital money market account that pays 2.2% as of 4Q2019.
2) Bonds / Fixed Income
Bonds give a tremendous protective allotment to an investment portfolio, particularly in times when things aren’t certain just as we are experiencing with the US-China trade combats.
If you stick with a government bond until it matures, you’ll receive all your due principal and coupon payments back. However, like stocks, there are a lot of several types of bond investments to select from.
You can also purchase municipal or corporate bonds. Municipal bonds are particularly attractive for bigger income earners who encounter a high marginal rate. And you can directly purchase Treasury bonds via your online brokerage account.
The major concern is on what the interest rates will be in the nearest future. All things being equal, bonds will definitely decline in value, if the interest rates increases. Having said that, in as much as you’d let the bond investment grow until maturity, you’ll be getting back your actual principal together with all coupon payments, especially if you are investing in highly-rated bonds.
3) Physical Real Estate
As far as building great wealth is concerned, real estate is my most-cherished class of assets. This is because it generates income, provides shelter, and it’s easy to comprehend. The major barricade about investing in physical real estate is that it gets poorly-ranked on passive variables as a result of maintenance and tenant issues.
When you’re buying a primary residence, you’re unbiased in the real estate market. If you’re a tenant, renting apartments, you’re making shortages in the real estate market. And that’s why owning primary residence is preferable.
In highly expensive locations such as New York City and San Francisco, the net rental income can decline as low as 2.5%. This is an indication that there’s some liquidity purchasing property majorly, not really for generating income, but for appreciation.
4) P2P – (Peer-to-Peer Lending)
Peer-to-Peer lending was first started in San Francisco along with Prosper and Lending Club in the middle of 2000. The major concept of Peer-to-peer lending is to assist deprived borrowers with obtaining loans at likely lower rates as opposed to the rates of bigger financial institutions.
With an expanded portfolio of over 100 notes, the best Peer-to-peer lenders affirm that investors can generate a yearly return from 5% – 7%.
The biggest challenge I’ve got with Peer-to-peer lending is that I don’t get repayment from people. There’s a significant reason people aren’t keeping to the contract agreement.
5) Dividend Investing
One of the greatest ways to build passive income is to invest in huge cap dividend firms.
Assuming a firm generates $1 per share and pays $0.75 out as a dividend; that is a dividend payout ratio of 75%. Assuming the following year, the firm generates $2 per share and pays $1 out as a dividend; at least we can say the total dividend amount rises.
Biotech, Internet, and Tech, simply put, don’t pay dividends because they’re reinvesting much of their conserved earnings back into the firm for more growth. But over a short period of time, growth stocks can lose tremendous value of investors.
Buying ETFs like VYM, DVY, index funds, or NOBL is one of the best ways to be exposed to dividend stocks. You can as well leverage Betterment as a virtual wealth advisor to save your money on your behalf at a very low rate. The major point is to consistently invest over time.
6) Investing in Private Equity
Investing in private equity can be an enormous stream of passive income with the appropriate investment. If you’re able to find the next Uber, you’ll receive returns that will get every other passive income stream blown away from the water. But as a matter of fact, it’s, really, a daunting task to find the next Uber in as much as most private firms disappoint and the best investment opportunities are found with the connected investors.
Among the private investments, the most liquid ones are investing in hedge funds or equity, private company funds, and real estate funds. There used to be a lockup period of 3-10 years. The minimum liquid of the private investments is the situation whereby you invest in a private company directly.
Getting access to some private firms is limited only to accredited investors, which is the main reason the Feasibility grade is just a 4. But the Activity grade comes to a 10 all because you cannot just do anything at all whether you wanted to or not. It’s a long-term investment to the core. The Return and Risk grade solely depends on your investing access and acumen.
7) Real Estate Crowdsourcing
At present, real estate crowdsourcing is my favorite passive income stream, which enables people to purchase a commercial real estate project piece that’s available once to extremely high net worth institutional or individual investors.
Real estate crowdsourcing enables you to invest as low as $600 in a commercial or residential real estate project for likely 8 – 13% yearly returns based on recorded data. Returns like that are much better than the average CD, private equity, Peer-to-peer lending, bond market, and dividend investing returns.
Unlike Peer-to-peer lending, your physical asset is representing your collateral with real estate crowdfunding.
For people who wouldn’t want to go for a deposit of $300,000,and then a mortgage of $1.2 million to purchase the medianhouse in a costly coastal city like NYC or SF – who do not want to have any dealing with remodeling or tenants, they’re suchwho want to relax once an investment has been successfully made.
8) Creating Your Own Products
If you’re creative by nature, you may want to come up with a product that earns you a consistent flow of passive income for the future.
You could come up with your own e-courses, eBooks, songs to create your own steady flow of of passive income, or award-winning pictures.
About 7 years ago, I published an e-course on investment opportunities that was selling out more than 40 copies monthly at $72 each without any recurring maintenance expenses. The course has been updated and revised recently to educate people on the best way to invest in real estate to open a doorway to financial independence in their lifetime.
To ensure you earn a steady income of $50,000 per year passively from the course, you would have to invest a minimum of $1.2 million in an asset that generates a 3.5% interest. To generate a yearly income of $10,000 passively, you would need approximately a capital of over $200,000.
Making the most out of the internet to connect, create, and sell is simply what everybody should be doing on the condition that the capital cost is extremely low. The little risk is a damaged ego and time lost.
Review of Passive Income Ranking
According to my 5-factor representation in ranking the best passive income streams, real estate crowdfunding, dividend investing, and coming up with your own products are the best three among others.
For people in the high marginal income tax parenthesis, it’s attractive to invest in municipal bonds provided there is no state and federal tax to be paid if you purchase your municipal bonds in the state.
All of those 8 passive income streams are right for someone out there. It solely depends on your understanding of the investments, personal preference, interests, and creativity.
For several people, I really believe public REITs, real estate crowdfunding, and dividend investing are the most powerful sources of ideal passive income with the required minimum amount of work and the greatest potential risk-managed returns.
For people with creativity, creating digital products and coming up with a personal site like this particular one is way better without the necessary capital. If you’re creative, you’re going to be found out there. But with time, amazing things begin to come up if you’re consistent in what you’re doing.
Invest Frequently & Early
Being eager to work is feasible when you have very little funds and are young. Having passed through the whole of four years in high school, followed by another set of 4 years in college, the whole work seems like a thrilling adventure! But after some time, the job you started with excitement may start beating you down.
You may have some co-workers at work that may be unhappy about your progress, joy and excitement. You may have developed some antagonists having got promoted at work for being committed and dedicated. Maybe you thought it would continue like it used to be from the start, but, eventually, it got to a level, things started to become boring to you.
This is the efficacy of taking action while you’re still energetic to work. With good interest rates, growing passive income will require a ton of patience and effort. The earlier you start out, the better for the future!
You’ve learned about my passive income investments, throughthis post, that I’ve been growing for more than two decades. This passive income stream has allowed me and my family to live a life full of excitement, accomplishments, and productivity. Our next plan is to buy a $1.2million duplex building in the United States.
Saving often and early is not, by any means, sacrificing. Instead of that, living a life on another person’s terms due to insufficient funds is the highest sacrifice.
If you’re not affected by the amount of money you’re investing and saving, then you are not coming up with enough investing and saving. Eventually, no one cares about your money more than you.
I am Chris. I want to hear what you think. Please leave me your comment in the comment section below. I will reply to you as soon as I can. Please share.
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