Do you know what the most common form of passive income is? Yep, you guessed it, the stock market. More specifically, 401(k)s and IRAs. While this form of passive income is technically “portfolio income”, it’s still absolutely passive in nature. For most people, they automatically have some money deducted from their paycheck, which then gets deposited directly into their 401(k). Then, their funds typically go up in value in the future, even though they did absolutely nothing to earn it. Now that’s what I call passive income!
Are You Really Diversified?
Most 401(k) accounts have multiple mutual funds to choose from. When you invest in these mutual funds, you are essentially buying many different shares of stock under one roof. Just by investing in one mutual fund, you are somewhat diversified in your investment. After all, this method of investing is much more safe than purchasing single stocks.
However, when we dig into what a mutual fund really is, guess what, it’s just a bunch of stocks. If the economy is struggling, most stocks are affected the same – they go down! So, if your sole form of passive income is in mutual funds (aka, the stock market), you could be in big trouble in the future. While you may be diversified within the stock market, it’s 10 times better to diversify outside of the stock market as well!
What Do You Mean, Invest Outside of the Stock Market?
For some, their minds are so ingrained in the stock market that when someone says, “investment”, they automatically think about their 401(k). There are other investments out there besides the stock market, and I suggest you not only learn about them, but diversify your retirement accounts with them!
Passive Income Investments Outside of the Stock Market
One of the main reasons why other forms of passive income aren’t as popular is because it often takes a larger investment to get it rolling. For example, real estate is an excellent source of passive income, but in order to invest safely, it often takes at least $100,000! Also, some passive income sources take a long time to develop with little-to-no income for the first couple of years. While these can be turn-offs, if performed well, these other sources of passive income can be even more profitable than the stock market. Plus, you have more influence on the potential income!
There are two ways to discover highly effective passive income sources. Simply ask yourself these questions:
- What do people often rent?
- What types of businesses can be systematized?
We all know that owning something is always less expensive than renting something for the long term, so why not be the owner? The more expensive the item is, the more passive it becomes. With real estate, the initial expense is large, but since people tend to live in one location for at least a year, the income is quite passive and effortless. Other sources of income through rentals can include cars, appliances, furniture, and technology.
If you can build a business that can be taught through a system, you could potentially create a very passive income as well. For example, if you own a restaurant and you teach the manager how to keep the place running without you, suddenly your money maker is now incredibly passive!
Don’t be afraid to take your passive income investments outside of the stock market. Doing so will actually make your overall nest egg much safer, and you could potentially earn more money! Good luck!
Do you have passive income outside of the stock market? What is it?