The search for the most profitable passive income streams has increased in recent times because passive income has high profits and is very distinctive in our time. That is why today we will talk about the best and most profitable passive income streams in this article, so follow us.
Most profitable passive income streams
When you work and receive a salary, that is active income.
But if you suddenly lose your job for any reason — layoffs, illness, or misalignment with your boss — that income will be lost.
When you work and receive a salary, that is active income.
But if you suddenly lose your job for any reason — layoffs, illness, or misalignment with your boss — that income will be lost.
Passive income is money that comes to you regularly, regardless of your age, health, and performance.
Passive income planning should be taken seriously because it is not usually created within a month or even within a year.
First, you need to decide exactly when you need additional income - in three, five or ten years.
h Decide how much money you need, how much time and how often you want to receive payments: once a month for the rest of your life, periodically - for example, once every five years, or according to another schedule.
Think about how to save - a little from each paycheck, or once a year from a bonus, or just once when you receive an inheritance.
Deadlines and amounts should, of course, be realistic. After determining the plans, you can choose the most suitable tools.
The most profitable passive income streams
1. Bank deposit
Bank deposit is a familiar way to create passive income.
Bank deposit is a familiar way to create passive income.
If you have not dealt with investments yet, you do not want to risk, but you need to understand that keeping money under the mattress is unprofitable due to inflation, open a bank deposit.
This is the simplest.
You give the bank a certain amount of money to keep, and they pay you interest. You are guaranteed and get regular income.
This is the simplest. You give the bank a certain amount of money to keep, and they pay you interest. You are guaranteed and get regular income. But in order to live on interest only, you will have to invest a large amount of money.
Example of a bank deposit
You have decided to put the money in one of the most reliable banks.
These banks usually do not indulge in the high interest rates of their customers.
Most likely, the return on the deposit will be slightly higher than inflation.
Let's take a 4% rate for the calculation (this is the target inflation rate according to the bank's calculation).
You have decided to put the money in one of the most reliable banks.
These banks usually do not indulge in the high interest rates of their customers. Most likely, the return on the deposit will be slightly higher than inflation.
Let's take a 4% rate for the calculation (this is the target inflation rate according to the bank's calculation).
You have decided to put the money in one of the most reliable banks.
These banks usually do not indulge in the high interest rates of their customers. Most likely, the return on the deposit will be slightly higher than inflation.
Let's take a 4% rate for the calculation (this is the target inflation rate).
To receive, say, $30,000 in interest on a deposit each month, the deposit amount must be about $9 million.
Agree, this is a decent amount that still has to be accumulated.
Pros :
- Stable income and reliability, because all deposits are insured.
- If the bank loses its license, you are guaranteed to receive your money for $1.4 million.
- If you want to deposit more, it is better to distribute the funds between several banks.
Negatives:
- Low return on deposit.
- You need to freeze large amounts of money for a long time.
2. Non-government pension
If you want to have passive income not now, but in the future when you retire, you have another option.
If you want to have passive income not now, but in the future when you retire, you have another option.
You can agree on additional pension provisions with a non-state pension fund (NPF).
You make regular contributions to the NPF, and the fund invests your money to provide you with additional income.
Ideally, this will not only help protect savings from inflation, but will also increase them several times within a few years.
You make regular contributions to the NPF, and the fund invests your money to provide you with additional income.
Ideally, this will not only help protect savings from inflation, but will also increase them several times in a few years.
When you reach the age specified in the contract, you will gradually begin to receive these savings (your deductions in addition to investment income) in the form of a pension.
Example of a non-government pension
If someone makes 30 years before retirement, start saving $5,000 a month in the National Provident Fund.
Suppose the fund invests it at a return of 9% per annum.
Then you retire and expect to receive additional payments from the National Provident Fund for 25 years.
Your additional pension will be more than 30 thousand per month.
Positives
- Profitability can be very high because non-state pension funds.
- It can invest in long-term and more profitable projects in the future.
Negatives
- These deductions are not included in the deposit insurance scheme.
- If the fund goes bankrupt, there is no guarantee that you will get your savings back.
3. Investing in stock
Investing in the stock market may become a form of passive income.
The main law of investing: profitability is proportional to risk, and profitability grows - and the risk increases.
Therefore, it is better to start with instruments that are less risky and more predictable - bonds, preferred stocks or units of mutual funds with a high credit rating.
The most dangerous tools are not for beginners.
Let's take a closer look at the pros and cons of individual investment tools.
1. Coupon bonds
Bonds are debt securities, which are issued by an issuer - a country or a company that plans to raise funds.
When you buy a bond, you loan the issuer your savings for a set period.
In return, he promises you a pre-determined income.
You can get this income at the end of the bond's life - at the time of its redemption, or you can also get what's called coupon income - periodic payments.
Novice investors should choose government bonds or coupon bonds of reliable companies.
Example of a voucher bond
The Ministry of Finance offers special federal loan bonds to private investors i.
Here are the parameters of one of the 2018 issues: face value - $1,000, bond term - 3 years.
Coupon payments - once every six months.
The number of payments - from 32 to 42 dollars.
In just three years, about $220 will be paid out. The final return is 7.3% per annum.
This is higher than most banks' deposits.
And if you take advantage of tax incentives, the net return will be higher.
Positives
- Low risk
- And government bonds - the minimum.
Negatives
- Income on trusted bonds is small.
- Not much higher than the interest on the deposit.
- At the same time, it is impossible to eliminate the risk of losing money - any investment assumes this.
- Even highly reliable companies can find themselves in a difficult financial situation and fail to meet their obligations to bondholders.
- Investments in the stock market are not included in the deposit insurance system.
2. Preferred Stock
Ordinary shares do not guarantee income to their owners.
And for preferred shares, dividends are usually known in advance.
This is a more predictable option and is more suitable for novice investors.
If you are just getting started in the stock market, then you should just buy the “leading chips” - the securities of the most reliable companies.
Shares of other organizations may be more profitable, but they are accompanied by more serious risks.
Positives
- Opportunity to get more income from bank deposits and bonds.
Negatives
- More dangerous tool.
- Suitable only for experienced investors.
3. Mutual Fund Units
Mutual funds (Mutual Funds) form ready-made portfolios of securities - only bonds, only stocks, or various securities.
And you can buy part of this portfolio - a share in a mutual fund.
This is also a good option for beginners in the stock market: you can study the investment advertisements of different funds and choose the appropriate one.
Mutual funds are managed by private management companies (UK).
And it is important to trust your savings only to companies with the highest reliability rating - where there is at least one letter "A".
So you risk less
. You can choose suitable MCs on the websites of credit rating agencies. Then the professionals will manage your investments, and you will get passive income.
Positives
- You can start investing in mutual funds with almost any amount, even from $1,000, and the profit can greatly exceed the interest on a bank deposit.
Negatives
- Conventional investments are not insured by the state and profitability is not guaranteed.
- And don't forget that income from securities is subject to income tax.
- It is best to invest in stocks or shares of mutual funds through an individual investment account.
- It makes it possible to obtain a tax deduction, that is, to pay a lesser amount of tax or return the amount already paid.
4. Investment life insurance (LIS)
In this case, the insurance company will invest the money for you.
You can conclude a contract with her for 3-5 years, deposit money once or several times during this time, and at the end of the term, get back your contributions in addition to the accumulated investment income.
Almost all companies guarantee that the full amount of contributions will be returned to you in any case, even if the investment does not work out and the insurance company does not receive income, but rather a loss.
Sometimes the protection of deductions is not complete, but partial - you need to carefully read the contract.
As a rule, an insurance company can offer you several investment strategies.
There are less risky elements - the insurance company will invest your money in the most reliable assets, for example, in the same bonds.
But profitability, in this case, will be low.
There are more risks - the company will be able to invest your money in stocks, including foreign companies.
Probable profitability will be higher, but the probability of not winning anything will also increase.
In addition, ILI policies often include life insurance against various risks.
In the event of a serious illness, injury or sudden death, the policy holder himself or his heirs will receive not only the full amount of contributions and investment income but also a large insurance amount.
Positives
- Your money is managed by professionals, so the income can be decent - higher than bank deposits.
- In a bad scenario, you will get back the money you deposited.
- If the policy includes life insurance, your family gets additional protection.
- Another bonus to securing a giveaway is the chance to get a tax deduction.
Negatives
- Profitability cannot be predicted in advance, it may turn out to be zero.
- The state does not guarantee the safety of insurance premiums, so you have to choose your insurance company very carefully.
4. Real Estate
Renting an apartment, or rather a little, collecting money from tenants and not going to work sounds like a dream.
But in reality, this income is also accompanied by costs and risks.
It is necessary to take into account the costs: rent, property tax and rental tax. It is advisable to take out insurance for the apartment in case of fire, flood or other problems.
If the area is not very prestigious or has a lot of rental apartments, finding suitable tenants can be difficult.
Additionally, renters may not pay on time or damage your property — and it's a good idea to have insurance cover the repairs.
Positives
- The ability to earn a good passive income.
- Unlike securities, the value of real estate rarely drops to zero - only in the event of some kind of global catastrophe, but there is insurance for this.
Negatives
- Purchase and repair costs, taxes and utility bills can significantly reduce potential income.
5. Crowdfunding
Starting and running your own business is not for everyone.
But you can invest in other people's projects to earn.
For example, with the help of crowdfunding, you can invest in start-ups and fast-growing companies.
They can "shoot" and bring in a huge income. True, they can burn investors' money.
You should not invest all your savings in such projects.
But if you have already created many other more reliable passive income options for yourself, a small portion of your free money can be invested in this way.
Positives
- The ability to make big profits.
Negatives
- Very high risk.
- These tools are more suitable for professional investors who understand the market in which they plan to invest and are ready to risk money.
6. Create intellectual property
Creating a hit, bestseller, or hit product, or patenting an ingenious milk can opener is a great way to start making passive income.
You can get royalties for your work or invention for the rest of your life.
And grandchildren will get it, too.
Of course, to live on royalties, you need to create something in high demand and properly register the rights to your invention.
It's worth a try - the earlier you start, the more likely you are to arrange life for yourself and your children, like the hero of the movie with Hugh Grant.
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