Investing smart is the key to growing wealth. The idea is to invest your money in something that offers scope for maximum growth with minimal effort.

Well obviously, there are no free takeaways in the world of investing. But you can invest your money in avenues that require some initial effort but then generate regular income and profits in the long run. 

What is passive investing? 

Passive investing is an investment strategy in which you make a one-time investment that continues to generate income flows regularly without you having to do much active work on your investment. Passive investing typically requires some work at maintaining the investment, but nothing more than that. You can create passive income streams by investing in financial products or businesses. 

While passive income is a great way to maximize returns in the long term, you must remember that nothing is truly passive. Whatever the nature of your investment option is, you need to put in some initial effort to get the thing going. Once the investment is in place, you get the benefits of a regular income without having to actively work on your investment. 

How to do passive investing?

Before selecting the right passive investment avenues for your finances, you need to do your homework right. Firstly, you must carefully assess your financial situation and determine your goals and priorities. Based on that, you should make a list of possible passive investment options. 

Remember that passive investing is not just about investing in financial products. You could monetize your existing tangible assets like home, property, car, etc, and turn them into sources of passive income. You could also look at starting a business that generates long-term returns with little effort after the initial investment. Before you decide, do your research and take the advice of a finance professional. 

Remember that your passive investment should require no more than regular management. If you have to actively work for long periods to build a potential source of regular income, then the very purpose of passive investing is defeated. 

11 best passive investment ideas from least risky to riskiest 

1. High-yield savings account and certificates of deposit 

High-yield savings accounts and CDs are a safe investment option for creating passive income in the long term. 

These assets can create a consistent stream of income with almost no effort. High-yield savings accounts and certificates of deposit are best for risk-averse investors who want to build a passive income without the risk of losing anything. The downside is these instruments won’t make you rich as such because the interest rates offered by them are modest. But they are good for building an emergency fund with little or no effort. 

2. Dividend stocks

Dividend stocks are one of the easiest ways to create passive income. They distribute a share of the company’s earnings to their investors. These cash distributions known as dividends are paid to the shareholders regularly. 

Investment in dividend stocks is truly passive because once you own the stock, there is no active work required on your part. All you got to do is look for the right company and buy the stock. The tricky part lies in picking up the right stocks. You must spend a considerable amount of time researching each company and carefully evaluate the pros and cons. 

If you don’t want to spend time researching individual stocks, you could go for exchange-traded funds or ETFs. ETFs give you the chance to build a more diversified portfolio. They collectively hold assets like commodities, bonds, and stocks, but they can be traded like stocks. Exchange-traded funds are a great choice for novice investors because they are inexpensive and easy to understand. 

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3. Bond laddering

 Bond laddering is a classic passive investing strategy. It helps build a diversified portfolio as bond laddering involves buying bonds with different maturities. This gives the investor an incentive in terms of minimizing risk by spreading out the risk along the interest rate curve. Bond laddering provides investors with a steady cash flow throughout the year and lets them respond quickly to any changes in interest rates. 

Bond laddering is ideal for risk-averse investors looking for good returns. It is a relatively reliable source of passive income. However, the initial investment to start a bond ladder is relatively high. So this is not the right passive investing strategy for you if you have very little capital. 

4. Rent out your car

Your vehicle can become an asset and help you build a passive income. If you own a car, you can choose to rent it out. Car rentals are getting popular across the world. You can pick your own times for renting the car so that you can use the vehicle for use when you need it. 

You can also start renting your car through peer-to-peer car-sharing companies. One of the best things about renting your car is that there is almost no active work required on your part. All you need is a vehicle that is less than 10 years old. 

5. Investing in Farmland

Farmland investing is increasingly becoming an attractive passive investment option. It has a history of giving solid returns, is less volatile than other kinds of investable assets, and has a low correlation with the stock market. 

The easiest way to invest in farmland is by simply buying the land and renting it out to a farmer or rancher. However, this method involves a huge upfront cost which many might not be able to afford. 

The other way to invest in farmland is through real estate investment trusts that focus on acquiring farmland and leasing it to farmers. Any investor who owns a brokerage account and has enough money to buy a single share can invest in farmland REITs. This is a great passive investing idea since REITs do not involve active work on behalf of the investor. 

You could also invest in farmland through farming-focused crowdfunding platforms like FarmTogether. You can make a direct investment in specific farms or in a fund that holds many farm investments. However, you need to be an accredited investor to invest through most of these platforms. 

6. Real Estate Investment Trusts

If you think direct investment in a rental property can be risky, then real estate investment trusts could be the right option. Real estate investment trusts are companies that own commercial real estate like office buildings, apartments, retail spaces, hotels, etc. Upon investing in REITs, you get income payments depending on the cash flow generated by their operations. 

Real estate investment trusts are a good source of passive income since you don’t have to deal with buying and actively managing a property yourself. REITs pay about 90 percent of their cash flows as dividends to investors, thus making them a lucrative investment option. 

REITs are good passive income options in the long term but come with risks. You must carefully evaluate the kind of REITs you are going for. Always double-check the credentials of the brand and the locations of their properties. Real estate investment trusts also have significant operating costs so that’s something you must keep in mind. 

7. Rental properties

Investment in rental properties is one of the most popular passive investment ideas and a very lucrative one at that. If you own land or property that could be rented, you could start right away. Or you could invest in buying land and property in prime locations. 

Renting out your property is a very lucrative investment option if your property exists in an area with considerable demand. The profit margin in real estate is ridiculously high, provided your properties are located in a healthy market for renters. Many people make a living solely out of renting properties. It’s a good passive investment option to set for a regular income, and it can give you a permanent, stable income after retirement. 

Although, one must realize that managing rental property is not a cakewalk. So you must hire a property manager to make this investment truly passive. Your manager would deal with the regular stuff like managing these properties long-term, finding new renters, paying multiple mortgages and property taxes, and handling possible disputes with renters. The manager would do all the active work and you would just have to intervene in exceptional circumstances and supervise them generally.

8. Invest in small businesses

Investing in small businesses locally or nationwide is also a good passive investment strategy for the long term. 

You can make use of platforms like Mainvest and Honeycomb to start investing amounts of as little as $100 without having to pay any of the investor fees. Getting started on these platforms is easy, you create an investor account, have a look at the businesses that interest you, and then decide which business you want to go for, and how much you want to invest. And you usually start getting paid pretty quick, after a 45-day period during which the businesses can make use of the funding you gave them. 

9. Forex Fund Manager

Forex fund trading is a lucrative passive investment option, but it’s not easy for beginner investors. They end up losing money on all the wrong trading deals because they don’t have enough expertise to effectively allocate and manage their funds. That’s where a forex fund manager comes into the picture. 

Investing in a forex fund manager will help you save time while minimizing your trading risks and maximizing profits. As a beginner in trading, it’s an ideal passive investment option for you to create a steady stream of side income while allocating all the active trading work to experienced trading professionals. A forex fund management service like ART of FX would not just create a better financial future for you but also teach beginner traders the tricks and strategies for making money in the market. 

The best part about investing in a forex fund manager is that these services are not so expensive. On the contrary, you save money in the long run by making profits consistently and cutting down on the risks. 

10. Affiliate marketing

Affiliate marketing is a good strategy for building a passive income if you are a blogger, social media influencer, or a business with a website. Through affiliate marketing, you promote third-party products by including links to the product on your website or social media. 

If you are a business with a considerable online presence, you could leverage your reach to promote third-party products related to your niche. If you are a book blogger, you provide affiliate marketing links to newly published books on your blog. That’s how affiliate marketing works. It is a passive income idea because you are creating a side income stream by doing what you are passionate about. You don’t have to go out of the way or do anything different from your niche. 

Each time a visitor clicks on the link and makes a purchase from a third-party affiliate, the website owner earns a commission. If you operate in lucrative niches like software or finance, you could build some serious income through affiliate marketing. 

This is a risky passive investing idea because there is no guarantee of returns once you start promoting affiliate links on your site. Also, before you can start earning from affiliate marketing, you need to spend a long time establishing yourself as a blogger or a social media influencer. 

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11. Peer-to-Peer Lending

Peer-to-Peer lending involves lending money to individual borrowers through the facilitation of third-party platforms such as Lending Club and Prosper. P2P allows you to build passive income by earning interest payments on the loans. The peer-to-peer lending platforms connect lenders with prospective borrowers and there is little you need to do after initially funding the loan. 

Peer-to-peer lending can earn decent interest – typically between 5 to 7 percent. It also gives you the advantage of compounding. The lender receives payments in the form of equated monthly investments collected on their behalf by the P2P platform and then deposited in their escrow account. As a lender, you can choose to reinvest that money and get the benefit of compounding returns. 

Peer-to-peer lending comes with its own set of risks though. Since the loans are not secured, there is always the risk of default. Every peer-to-peer lending platform has its own set of rules and regulations. So you must choose your P2P platform carefully.