How to generate a passive income from investments

People invest their money for a variety of different reasons. Some are looking to build some larger savings for their children’s college fund. Others hope to build a comfortable nest-egg for their retirement. As you may already know, the stock market tends to increase by 7% year-on-year. That means you can earn a healthy pension pot over the decades. But, there’s another reason to invest, and that’s to create a passive income stream. Passive income investments are all about getting a regular return on your investments. Without really doing anything. It is possible to make these regular returns, and we’ll show you how.

The key here is boosting the potential of high returns, while lowering the risk. It’s the investor’s constant battle! However, there is an investing concept out there that has been known to provide 9% returns annually. We call it the ‘permanent portfolio’ concept, and it can give you a passive stream of income. Of course, you’ll need the initial money to pay into the fund. If you’re looking to take home $20,000 per year in passive income, you’ll need more than $200,000 to start. (Based on our potential 9% return).

Invest in blue chip stocks

Blue chip stocks are those giant institutions that will keep growing larger over time. Think of Disney, Apple, Coca-Cola etc. These are huge companies that own an enormous portion of the market share. They are the least risky stocks to invest in, because they’re almost too big to fall. They’ll ride out the bumps and dips in the market, and deliver big returns over the decades. Investors tend to feel safer investing in a big name company that isn’t taking too many risks.

Invest in stocks that pay dividends

Dividends are a simple and regular return on your investment. Let’s say you invest in Ford, and they post a particularly good year. You’ll get a percentage of the profit in the form a ‘dividend’. Some companies don’t pay out dividends at all. And some stop their dividend payouts when their balance sheet isn’t looking so healthy. With that in mind, hunt out the companies that pay regular and reliable dividends. That gives you a guarantee that you’ll have a regular passive income.

Invest in government treasury bonds

Although stock investments generally produce high returns over times, they are volatile. After the 2008 recession, for example, the stock market plummeted wildly. That’s why it’s always good to hedge your investments in other areas. One of those that provides good dividends is treasury bonds. This, essentially, is investing in the government. Although the government debt is enormous, treasury bonds are a fairly reliable investment. You get a regular return, and it doesn’t fluctuate as much as the stock market. With 25% of your money invested here, you should get a good passive income.

Keep cash in the bank

This is the simplest investment you can make. Banks pay you an interest rate to store your money in their vaults. At the moment, the interest rate is very low. (It has been since the 2008 recession in order to help the economy get back on its feet). When times are good, that interest rate will give you a good passive income to add to your investments. The permanent portfolio concept suggests you keep 25% of your investments in a high-interest account.

Invest in precious metals, like gold

Investing in gold alone won’t provide you with a passive income. Gold doesn’t grow rapidly, so you won’t usually make enough to live from. The beauty of gold is its stability. When the stock market is in freefall, for example, gold tends to grow and strengthen. The same happens inflation rises, and the value of the money in your bank starts to fall. Gold provides a ‘hedge’ against your other investments. That means you can keep taking a passive income. When the other investments fall, gold rises. Again, analysts suggest maintaining a 25% investment in gold or precious metals.

The riskier option

The strategy outlined above will provide a stable passive income. However, you can boost the value of that income, with a few carefully chosen investments of your own. Perhaps you could pick a particular stock you think will rise rapidly over the next 3-5 years. When it comes to the riskier option, you’re looking for the short-term. One example is Netflix, which was the best-performing stock on the market last year. Look for the investments that will outperform all the others. At the same time, be careful, as this is where you can lose money.

Passive income investments are possible, if you follow a careful strategy. Good luck!

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Elizabeth Goldman is the editor of AlternativeInvestmentCoach.com. She has written for Investing.com, Bullbearings.com and many others.