Everyone wants a thriving investment portfolio, but not all investments are created equal. Some are all about ensuring retention and slow, positive growth, trading potential growth for lower risk. Some are about high-risk decisions, putting more at stake for a potentially higher reward. But others are more about reaping ongoing benefits with as minimal input from the investor as possible; this is the concept behind passive income, but there are some rules for success you’ll need to know before you start investing.
What Passive Income Matters
Passive income is ideal because of its minimal invasiveness; there are thousands of ways to make money that require time and effort, but only through passive income can you make money without that ongoing time investment. The tradeoff is that you’ll need something up front first, such as a wealth of capital, or a profitable blog. Those things take time and effort to acquire, but once you have them, you can start looking for more passive income opportunities.
The Keys to Success
So what do you need to do to be successful when investing for passive income?
1. Do your research. First, there are hundreds of ways for you to earn passive income, and thousands of ways purported to earn you passive income that won’t pan out the way you think they might. One misconception or false assumption here, and you could wind up spending hours of time and thousands of dollars on an idea that goes nowhere. Do your research ahead of time, both for the passive income opportunity in general, and these specific circumstances. Run some quick online searches, and see if you can talk to someone in person who’s been successful in this area in the past. It’s always wise to seek a mentor, and passive income investing is no exception to this rule.
2. Know the full costs. Sometimes, passive income opportunities seem less expensive than they actually are, so make sure you know the full costs of the deal before moving forward. For example, in real estate investing, you may be able to ballpark how much rent you can charge and what your mortgage payments will be, but what about the costs of ongoing maintenance and repairs? What about the months where your building is unoccupied? Similarly, there are many mutual funds out there focused on maximizing dividend-based returns, but what management fees are associated with those funds?
3. Estimate your time investment. Remember, the key advantage to a passive income stream is its “passive” nature. That doesn’t mean you can’t spend any time on it, but you’ll need to be aware of the time demands before you follow through with your investments. For example, building a blog may seem like a great idea, but even if you start to become successful, you’ll still need to spend several hours a week at a minimum, producing new content. Your time is valuable, so don’t forget to include it in your cost projections and analyses.
4. Make your own opportunities. There are some passive income opportunities out there already, waiting to be taken advantage of—such as dividend stock investment—but others have to be created—such as creating an ecommerce site for a digital product. There’s an advantage to both of these options, but if you want to become and remain successful, you’ll need to learn to make your own opportunities.
5. Listen to advice. You aren’t the first person to invest for passive income, and millions of people before you have either found success or failed. While there are a few perks to trusting your gut and doing what you think is right no matter what everyone else says, it’s a more conservative and wiser play to listen to the advice of the experienced people around you.
6. Diversify. You’ve heard it time and time again: you need to diversify your portfolio to be successful in investing. This is a fundamental rule for a number of reasons—it protects you against volatility in any one market, it gives you a better spread to ride upward trends, and it forces you to stay on your toes with more research and development. Even though one passive income opportunity may provide you with a healthy stream of revenue, it’s never a good idea to stop at one. Push yourself to learn more, do more, and cover as many bases as you can when building up your investments.
Whether you’re looking to stabilize a reliable income stream for retirement or you’re just in need of an extra line of revenue, passive income is one of your best bets. When you realize that passive income isn’t a get-rich-quick scheme, and you know what it takes to make a profitable investment, you’ll set yourself up for long-term success.