What Is a Passive Investment Strategy?

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There is an inaccurate perception that a passive investment means you do not have to do anything. While that’s true from a certain perspective, there is an effort required in order to set up a passive income stream. A passive investment strategy is as much a mentality as it is a mechanism for building your nest egg.

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So, now you're probably wondering to yourself, "What is passive income and how do I set up a passive investment strategy?" The following steps will give you some passive income ideas and ultimately help you understand how to get ahead using an income stream that doesn't need as much active effort as going to work or starting a business from scratch. Creating an online course or eBook is a good idea in theory, but honestly requires more work and way too much time to be considered a passive activity. The following passive income ideas are surefire and require very little maintenance once they've been launched.

Find An Investment Vehicle That Interests You.

There are a few different ways to go about setting up your passive income stream, and it's important that you find the way of generating a passive income that speaks to you. For example, some people may choose to invest in a rental property and pay somebody else to manage the renters for them, taking a cut of the proceeds. While rental income is a great option for some investors, if you don't have the necessary money to invest in a second mortgage, this may not be the best decision for you and your family.

On the other hand, one of the easiest paths to passive income that doesn't involve online income is taking advantage of compound interest. Some people will choose to set up a secondary investment account, such as a Roth IRA in order to maximize their contributions by paying taxes as you contribute to your investment portfolio instead of paying taxes on the money when you withdraw it. Especially if you're currently at a lower tax bracket and expect to make more money in the future, maximizing your Roth IRA now can be a simple and effective way to leave your money in an account and watch it grow exponentially over the next ten or twenty years.

It's also worth noting that for especially conservative investors, there are still passive income ideas that may fit your investment style. While an online bank account, such as a savings account, won't offer you the same sort of returns or interest rates as the stock market, it's not a bad idea to keep some money in a high yield savings account as well. This, combined with investing in mutual funds and other assets, will help diversify your portfolio of passive income sources, helping to provide more cash flow.

Line Up The Needed Resources.

Once you've determined what sorts of strategies you're going to use to generate passive income, it's time to get to work. And by work, what's really meant is finding a few spare minutes outside your full-time job to ensure that your bank accounts and portfolio are set up properly. Thankfully, once you have the money, the internet makes it easy to automate your investment or savings strategies, automatically sending monthly or even weekly payments to wherever you're investing in the market. Even setting up an extra $100 to invest each month can wind up providing you with a lot of extra income once you can start withdrawing your stock dividends.

Of course, if you're investing in a rental home, you'll need to find a property management company you can rely on to maintain the home and deal with tenants. While this could result in you losing a higher portion of your passive income since you have to pay the manager a cut of your profits, when you consider that it's truly a passive activity generating some extra income each month, it's well worth the investment to find a good company to handle your rental property for you.