Building wealth can take time and there are many different ways to go about it. But, since it isn’t something that happens overnight unless you win the lottery you may not have the time to make sure that your wealth building strategy is going to work.
Which is why passive income is often the way to go. It is the easiest method to build wealth since it is generated while you are asleep or doing other things. The problem is that many so-called passive income strategies are hardly passive. Many require a lot of work to get started and if you don’t have time will never truly build wealth.
Investing is the most passive way to build your wealth since you are having your money do the work for you. However, some investing is high risk and others simply don’t give you high enough returns to actually build your wealth.
In this article, we explore some of the investments that make sense and are totally passive.
Real estate is one of the most tried and true ways to invest your money. There are very rarely times when it doesn’t make sense to invest in real estate as the returns are almost guaranteed to some extent.
We know what you’re thinking, however. Real estate is hardly passive. If you buy a rental then you have to be available to your tenants. Or, you hire a management company which eats away at your investment. Flipping houses can be a full time job if you don’t want to rent.
The way to do this is to invest in Real Estate Investment Trusts aka REITs. This is just like buying stocks in the sense that you are buying a portion of real estate, or multiple properties. Instead of owning the building or property, you own a stake and can even make dividends like you would from stocks.
There are various types of REITs like this one, so there is surely a version that is going to work best for your needs. One problem that many people in high tax brackets have with REITs is that the dividends are taxed as income and not as dividends so the tax burden can be quite high. There are also crowdfunding real estate investments that can be debt or equity investments that give some tax benefits.
One of the most passive ways to invest is in index funds. Rather than have to study a prospectus for a particular stock, you buy a portfolio that includes many different stocks or even fractions of stocks in various companies.
This makes them very low risk and stable. The low risk factor is seen in the low returns compared to some other individual stocks. You can expect between 6% and 8% annual return most of the time so it is a sure way to slowly build wealth while also protecting your assets.
Since they are a portfolio, there is no effort in keeping them. You don’t really have to stay on top of the latest news about a particular company or industry to decide on your investment strategy. There’s no effort needed in picketing stocks or market timing to protect your investment.
These funds usually outperform managed funds which are far less passive so it is a win win for most investors.
There are many people out there who need liquidity and either don’t want to use a bank for a loan or simply are not able to. This has given rise to the concept of peer to peer lending. As an investor you can choose to lend money on one of these platforms and earn the interest for yourself rather than to a bank.
Though this is a passive way to invest, there does need to be some research ahead of time to find the way that works best for you. You can choose the terms of the loan so you can get the principal back on the best schedule for you. Also, how much interest you want to make from the investment.
As with any investment, the higher the return the higher the risk. There are some borrowers that already have decent credit or a history of making timely payments on the specific platform. Those will pay less in interest but your investment is likely to be paid back in full. Those with worse credit history will pay out higher interest rates.
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.