If you’ve begun making resolutions for the coming year, here’s another one to add to your list: Take one step toward to financial independence.
It’s easier than it sounds, and it begins with creating passive income streams.
Passive income streams are many investors’ white whale – and for good reason. They have the ability to provide returns worth millions of dollars. Yet finding the right one – much less a safe one – can feel like Ahab’s search for Moby Dick.
We believe our readers’ golden years should be smoother sailing than that, so today we’re revealing proven passive strategies that can strengthen your portfolio and provide surprising amounts of stability.
Invest in dividend-paying companies.
Dividend-paying stocks offer quarterly or yearly returns on company profits. When investing in dividends, keep variables like payout ratio, free cash flow and net interest income in mind to determine if the payout is reliable. Marc’s Safety Net column is a great resource for analyzing dividend safety.
Once you have a portfolio of Perpetual Dividend Raisers established, you have the option of reinvesting the dividends using a dividend reinvestment plan, or a DRIP. DRIPs are a powerful tool for income investing because each time you reinvest your dividends, you come to own more shares and receive higher dividends the next quarter.
This all leads to Einstein’s favorite part about passive income… the power of compounding.
As Marc pointed out in a recent column, “The magic of compounding starts off small… But with enough time, it generates a huge amount of money. It’s like a train that pulls out of the station slowly, then gains momentum and races down the track. Eventually, that once-sluggish train will take miles to stop.”
Allocate a portion of your portfolio to bonds.If you’re seeking security, look to corporate bonds – especially if you are confident in a company’s future earnings.
While Marc is known as the “dividend guy,” he also advocates for owning bonds to maturity…
Let’s say you buy $1,000 of a bond at par value yielding 4% that matures in two years. That means that you’ll collect 4% interest each year and receive your $1,000 back at maturity.
If next year the bond declines in value to $900, that doesn’t matter. Because at maturity, you’ll get your $1,000 back. And you’ll still collect 4% interest. The interest rate you’ll receive does not fluctuate with the price of the bond.
As you get older, that kind of stability – and reliable interest – is a nice bonus.
Keep in mind, short maturities are key. You should aim to commit to three years or less with corporate bonds and even less time with Treasurys.
Get creative. If you have an entrepreneurial, technological or creative spirit, you can develop an app, create a blog or YouTube channel and generate ad revenue, or make an audiobook through Audible ACX.
You can also create eBooks using Amazon Kindle Direct Publishing, or you can take stock photos for sites like Shutterstock.
Or – as Marc likes to say – become the bank and try peer-to-peer lending.
Regardless of how you choose to apply your funds and your talents, one thing’s for certain: You have power over your financial future.
There are even ways to generate income through habits you’ve already established – for instance, choosing a credit card that offers cash back (or other rewards) or opening an FDIC-insured high-yield savings account through a bank or money market fund.
It’s almost the new year, and that means there’s no better time to let go of sell-off anxieties and implement strategies that could change your financial outlook for good.
Resignation and account balance dread are things of the past (2018, to be exact) – with passive income streams, that white whale is closer than you think.