What is Passive Income and How Can I Earn Some?

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Everybody wants to be rich or get rich, or at least achieve a certain level of economic stability.  Life can be stressful and challenging enough without having to worry about financial security. A November 2017 report from the Ontario Securities Commission entitled “Missing Out – Millennials and the Markets” found that 4 in 5 millennials in Canada are saving but only 50% of those savers are investing their money.  59% of the non-investors claim they don’t understand enough about investing to get started.

In the United States, the situation is similar.  Forbes Magazine reports that a recent Harris Poll conducted for the Transamerica Center for Retirement Studies found that 71% of millennial workers are saving for retirement.  In fact, 39% are defined in the poll results as “super savers” who are regularly putting away at least 10% of their salary, but like their Canadian cousins, American millennials need a push when it comes to investing.  42% are investing conservatively compared to only 23% of their baby boomer parents and grandparents and a whopping 25% of all millennial savings is in cash. They are saving, but in investing in such a conservative manner, they are not using the savings to generate more income.  As a result, there is a real fear that despite being the “saver” generation, millennials will come up short when it comes to funding retirements.

Defining Passive Income

Investopedia defines passive income as “earnings derived from a rental property, limited partnership or other enterprise in which a person is not actively involved.  Portfolio income is considered passive income by some analysts, so dividends and interest would, therefore, be considered passive.” Passive income may offer one route to financial security for many young people who are basically happy with their jobs and lifestyles but looking to add income without having to work too hard in the process.

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In today’s low-interest rate economy, even the highest yielding savings or money market accounts offer extremely modest returns in return for negligible risk. So, where are investors to go to generate some real income while still minimizing risk.  Peer-to-peer lending (P2P) websites for borrowers and investors allow participants to bypass the banks and brokers and make money by helping each other directly. Investors can choose the risk level they are comfortable with. While P2P has the potential for high returns, there is also significant risk associated with the act that many borrowers in the platforms are there because they failed to qualify for financing in the traditional marketplace.

Low Risk Passive Income Opportunities

Instead of parking savings in cash, bonds, and low-yield money markets, young investors should look toward generating passive income through stocks, REITs, rental properties, peer-to-peer lending and crowdfunding platforms such as addy.  Investing in the stock market has historically been a proven winner for long-term investors able to ride out the highs and lows of bull and bear runs. Stocks are liquid and easy to sell and they offer appeal to both day traders looking to capitalize on short-term swings and long-term investors looking to secure a comfortable retirement.  Stocks generally offer the potential for higher returns than bond markets which post modest earnings in return for reliability and reduced risk.

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Real Estate Investment Trusts or REITs are much like stocks.  When you invest in a REIT, you are buying shares of a company that concentrates its investment in real property.  One downside to REITs is that the required dividend distributions are generally taxed as ordinary income which could pose a problem for those investors already in the higher tax brackets.  Owning a rental property is a great way to generate supplemental income and start to build a real estate portfolio. While income from a rental property is classic passive income, it does not feel at all passive when you are putting in hours as a landlord and working to ensure that the property is well-maintained.  In fact, it feels like hard work.

A much easier pathway to generating passive income is through crowdfunded real estate investment platforms.  addy and other sites offer potential for high returns coupled with low risk in a ratio not found in other more traditional forms of passive investing.  addy investors can start to generate passive income from the comfort of their own living room using only a laptop or smartphone – with as little as $1 down.  addy is revolutionizing the world of real estate investing by allowing everyone to get in the game. Potentially high passive income with low investment risk is a combination that is hard to resist – even for millennials who are bullish on savings but skittish on investing.





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