10 Different Ways to Generate Passive Income From Scratch
No matter what everyone else says, time is the most valuable commodity in this world. Every aspiring individual should strive to own 100 percent of his own time. This means that they should work for no one yet still generate passive income which continues to grow. If you’re feeling miserable working for others then you should consider the investment ideas below which will give you a path to financial independence. Financial independence will mean that 100 percent of your expenses are covered by the income that is generated from your investments.
This site not only shares information on Millionaires Giving Money away but it also helps people to build wealth and make money. These 10 investment ideas if implemented properly will help you grow your wealth and prosperity in the long run and will also help to lift anyone out of poverty.
Before you consider some of the investment ideas listed below it is important to understand the investment so you become an expert before you invest a cent. Always find ways to increase your income and reduce your outgoings and invest the surplus. Remember when an investment return seems too good to be true it usually is. Finally be wary of parasitic con artists who prey on people who want a decent rate of return. (Also check out some of the resources at the end of the post to get yourself in shape and disciplined which helps so much when you invest money)
Investment Ideas for Financial Freedom
Investment Ideas 1: Dividend Aristocrat Stocks
Dividends profit comes from Public traded companies on the stock exchange. By opening a broker account you can invest in these great companies to get a share of the profits. Dividend Aristocrat stocks are stocks which have continually increased their dividends over the last 25 years.
These companies have solid management and are always looking for ways to grow thereby reducing their costs and increasing their profits. Suppose you invested $1000 dollars in a dividend aristocrat stock which was paying 5% and had a history of increasing its dividend by 20% you would receive the following passive income.
Year 0: 5%: $1000
Year 1: 5%: $1050
Year 2: 6%: $1113
Year 3: 7.2%: $1193
Every year the dividends on these stocks increase which means that your passive income will increase. This is an excellent hedge against inflation and you can continue your lifestyle without worrying about the purchasing power of your money.
Some dividend aristocrat stocks have been increasing their dividends for over 60 years. HCP Inc has a dividend yield of 5.35% and has been increasing the dividends for 28 years. AT&T has a dividend of 5.33% and has been increasing their dividends for the past 29 years. You can find the full range of dividend stocks here.
Before you invest in the dividend stocks it’s important to understand the company’s fundamentals. Look at the annual reports and then find the direction the company is headed. Look at the charts to find good entry points. Don’t just buy high, keep an eye on the stock and when it reaches a fair value you can start accumulating shares. This way your dividends will grow as well as your capital.
Investment Ideas 2: Property Development
Property prices are on the rise in the USA and around the world. Property prices in London have risen 60% in 2013 and are set to rise even further. Investors are aware that low interest rates will not last forever and could be coming to an end as soon as 2015 after 5 years of historic lows. If you look at the chart below you will see that the property prices have fallen to a fair level.
best way to invest in property is through redevelopment. You buy a property which requires modernization and then rent it out. By redeveloping property the equity in the house increases. The low interest rates also boost demand and as the population rise rents will also rise. This kind of investments has 3 levels of upside.
best way to invest in property is through redevelopment. You buy a property which requires modernization and then rent it out. By redeveloping property the equity in the house increases. The low interest rates also boost demand and as the population rise rents will also rise. This kind of investments has 3 levels of upside.
This is one of the best investment ideas I have used to accumulate wealth. In London I have redeveloped 3 properties which have appreciated in value because of the work done. For every $1 I spend I increased the value by $3. Also the demand for houses in London is always rising so that is increasing the price too. Finally the rents in London for a 3 bed home have risen from £1000 per month to £1500 per month in the space of 5 years.
If you’re not prepared to use your valuable time redeveloping properties you could invest in property REITS exchange traded funds. These funds are at respectable levels and have recovered from the crash of 2008.
Investment Ideas 3: Selling Put Options
Suppose AT&T is valued at $40. Suppose through your analysis you found that the fair value for AT&T is $35. You can sell put options at the $35 strike and receive a premium for taking on the risk. You will be given say $100 per contract. If AT&T remains above $35 you get to keep the $100. If AT&T is at or below $35 you can purchase the shares at a point where you believe there is value.
Warren Buffet buys most of his stocks by selling options. This way you generate monthly income and also have the opportunity to buy solid companies at fair prices. By selling put options conservatively you can make 12% Per Annum which is a great return on capital. Remember that greed can get the better of you here and it’s important to trade sensibly only using solid companies that will never ever go bankrupt.
Investment Ideas 4: Closed End Funds
Another of the investment ideas which you should research on are closed end funds. These are similar to exchange traded funds however the underlying price is not determined by the price of the underlying stock. Instead, it is determined through demand and supply. This means that closed end funds could be trading at a premium or discount. When a closed end fund is trading at a discount you can buy $100 worth of underlying shares for $90.
Enhanced closed end funds also offer income of up to 10% per annum because they sell covered calls on the underlying stock to generate extra income. There’s some closed end funds which offer greater reward for less risk taken compared to the S&P 500. If you’re investing in index funds these are much more superior and offer a better return.
At the moment these closed end funds are peaking in value. You should keep an eye on these investment ideas so when the market crashes or corrects you can swoop in and buy the closed end funds at rock bottom prices.
Investment Ideas 5: Peer to Peer Lending
Investment ideas such as social lending are becoming popular. I invest a proportion of my money through Trust Buddy which is offering 12% and Funding Circle which offers between 5% and 10%. When I invest my money using Funding Circle I only invest in businesses which have a solid credit history and where the loan is asset secured. If the business were to go bankrupt the assets would be sold and monies returned to investors. There is a considerable risk when it comes to P2P lending however by investing sensibly you can reduce the risk and get a decent rate of return.
Investment Ideas 6: Fixed Interest Securities
Fixed interest securities are interest bearing loans to multinational companies looking to raise money. Depending on the risk you could get a return between 3% and 10%. Companies such as Procter & Gamble, Barclays, and Paragon issue fixed interest securities with a stated amount at the beginning which might be 5%. The principal money is guaranteed as long as the company does not go bankrupt.
When investing your hard earned money in fixed interest securities do not be tempted by high yields. Instead find respectable companies which have been around for decades. These companies should have solid fundamentals along with a robust management team. Fixed interest securities account for 10% of my portfolio and I only invest in companies which I believe have a future.
Investment Ideas 7: Fixed Deposit Accounts
Fixed deposit accounts are safe investment ideas. Conservative investors could fix their savings for a period of time and receive between 4% and 6%. The rate depends on how long the investment term is. At the moment rates are very low. As an investor you should check the rates on offer as you could get 4% fixed deposits from time to time. About 40% of my money is in completely safe investments earning 4% return every year for 3 years.
It’s important to have most of your money in save investments just in case the others go sour. I invest 40% of my portfolio in safe investments because this will help me survive if every other investment takes a nose dive.
Investment Ideas 8: Regular Savings Account
Investors first start out by saving regular amounts every month. Most of these investors just put their money in accounts where they receive a paltry rate of return. At this stage it’s important to make your money work as hard as possible. Regular saver accounts offer rates between 5% and 8%. This compounding effect helps money to grow faster.
Investment Ideas 9: Covered Calls
Covered calls are great investment ideas if you own stock and want to receive monthly income. Suppose you own AT&T which is currently trading at $35. Suppose through technical analysis you think that the stock won’t rise to $40. If you sell call options at $40 strike for one month you could earn $100 per contract. If AT&T does not reach $40 you keep the premium. If AT&T reaches $40 you can sell the shares and cash in the profit. You can then start to sell Put Options as outlined in investment ideas 2 to get back into the stock at a fair price.
Investment Ideas 10: Stock Market
By taking a look at the stock market trend over the last 100 years you will notice that stocks rise and fall over time. Most novice investors buy when the stock market has peaked because they are scared of missing out. These investors get burnt when they lose money during the crash or correction. Smart money flows in after a crash or correction. Warren Buffet explains that you should be fearful when everyone is greedy and greedy when everyone was fearful.
During the crash of 2008 a lot of investors lost most of their money. During 2008 I invested about 30% of my portfolio into solid stocks such as Coca Cola, AT&T and Visa. These stocks were on sale and I knew that they would recover when the market recovers. Most of stocks I bought in 2008 have doubled even quadrupled and my capital is growing as I sleep.
At the moment the S&P 500 is at an all time high. This is not the best time to buy. Eventually the stock market will as valuations are determined through speculation and not actual earnings. When the market crashes or corrects you should swoop in and purchase quality stocks at rock bottom prices.
Investment Ideas for Passive Investments
My portfolio is based on all these investment ideas. The best way to start investing is by becoming an expert in each of these investment vehicles. Get to know how the investment works and then study the history to get a long term perspective. Master the art of timing and you’ll continually grow your income and capital every year. Financial independence can be achieved through investing as long as you continually compound your principal and never lose money. You can also continually add money to your investments. Depending on the rate at which you add more money and the rate of return you could be financially free very quickly.
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