Wealth is rarely earned. Rather, it is generated by investments and so-called “passive” income. Passive income is the term used to describe the money your money makes. This article will give you three easy ways to start generating passive income from the comfort of your home.
Use a Robo-Advisor
Working with a traditional portfolio management company comes with high minimum investment requirements and high fees. You can avoid all of that by using a robo-advisor online.
A robo-advisor is an automated investing service that uses computer algorithms to create and manage your investment portfolio, following your preferences and parameters. A robo-advisor also offers ongoing services if wanted, such as balancing your account or optimizing your investments for tax purposes.
You can begin to work with a robo-advisor online with a minimum investment of only $500 in some cases. Robo-advisors manage taxed investment accounts, 401(k) accounts, and even trusts. When you start working with a robo-advisor, you will complete a questionnaire designed to assess your risk tolerance and goals. You will be offered several portfolio choices ranging in risk from conservative to aggressive.
Be sure to review a robo-advisor’s fee structure thoroughly. Most robo-advisors charge between 0.25% and 0.50% in management fees, as well as a fee based on a percentage of your assets. There may also be additional fees, such as the expense ratios charged by exchange-traded funds (ETFs) and index funds.
Make Microloans
Peer-to-peer (P2P) lending online is not new, but what is new is the availability of loans to underserved populations as well as the ability to make those loans by new and small investors.
Online P2P platforms such as Kiva, Lending Tree, and Prosper allow investors to fund individual loans or a portfolio of loans. The borrowers are either from underdeveloped countries or have poor credit and cannot obtain financing otherwise.
Investors can support their humanitarian goals while generating passive income in the form of interest on the loans. Borrowers at greater risk of default will pay higher interest than those at lower risk.
While there is always a risk that a borrower will default, creating a diverse portfolio of loans ameliorates that risk somewhat. Platforms are typically paid by the borrowers and the fees rolled into their loan payments.
Invest in Commercial Real Estate
Until recently, the ability to invest in commercial real estate was available only to accredited (high-worth) investors. Today, online platforms such as Fundrise, Diversyfund, and Modiv (formerly RichUncles) allow the average investor to purchase shares in a pool of assets including commercial property, the management of commercial property, the financing of commercial property, or all three.
An investor can get started with as little as $10 and obtain ready-made diversity in a portfolio of commercial assets. Be advised, however, that these investments are highly illiquid and, as such, are suited for those with a long-term outlook only. And be sure to perform your due diligence regarding fees.
Which of these three easy ways to start generating passive income appeals to you?
About the Author
Roni Davis is a writer, blogger, and legal assistant operating out of the greater Philadelphia area. She frequently works with FNRP, which is in the business of investing in commercial real estate.
