After realizing that my dream of financial independence is still years away, I realized that I need to come up with a game plan to increase my passive income and diversify my investments at the same time. Passive income is important to me because it will be one of the ways to supplement my income and slowly transition into either self-employment, part-time work, or early retirement. As my passive income increases, my requirement to make more money from my day job decreases.
The next question then is how to increase my income the fastest way. We all know to keep out of debt as advised by Consolidebtllc. However, it's hard to know what the best use of my money is and where I should be directing my money, so I figured I would make it a challenge. Instead of just making assumptions about what the best way to make passive income is, I figured I would try multiple forms of passive income and see what kind of returns I get.
Finding Out Which Investment Gets the Best Return
As soon as I told myself that I would try multiple forms of investing to generate passive income, I knew that I would enjoy this challenge. If you don't know me personally, I love challenges. They push me to do more and I generally see pretty exciting results. Over the next few years, I am going to keep track of my returns on numerous different ways of investing. Some are more unconventional than others, but that's what makes it exciting.
Before I get into the four paths to passive income, I thought I would first clear up the ground rules:
- Not all investments will be the same (monetarily), so the return on investment (in percentages) will be the primary means of comparison
- All investments must have a limited time involvement to manage (no more than 6 hours per quarter)
Now, let's get to the exciting stuff. Which investments am I going to use to generate passive income?
There are four primary investments that I am starting now (or have started very recently) to generate passive income:
- Dividend Paying ETFs – I opened a brokerage account at Fidelity and will be using a few dividend ETFs to invest regularly. The particular ETFs were selected as a great way to be invested in the stock market without any high maintenance or transaction fees. Between the dividend payments and the increase in price, I expect to have some decent returns.
- Peer to Peer Lending – I just recently opened up a Lending Club account. I had been reading a lot of updates about people getting pretty decent returns. While it still seems a little risky to me, I'm excited to see whether it pays off. Since I'm not totally convinced that this will produce great returns yet, I am investing significantly less money than the first option.
- Real Estate – This option is probably my most passive investment, since I am investing in a limited partnership. My time requirement is literally zero and I am expecting some great long-term results. I think it will take a little time to get rolling as the general partners acquire properties, but expect to have a great return by end of year 2 or 3.
- Blogs – The last form of investing is something that I've talked about before and received some criticism. I understand that running a blog may take more time than other investments, and that is why I am committing to make this comparable. I am starting a site from scratch and outsourcing almost all of the tasks required with maintaining a blog. Content creation, commenting, carnivals, etc. While it would be easier to generate passive income with an established site that I purchased, it is difficult to find a reasonable price on a great blog these days, so I am starting from scratch. Again, any time managing the site will be kept to less than 6 hours per quarter, or two hours per month.
While I have expectations on which source will produce better short-term and long-term results, I will leave that for the first update. I also thought extending the challenge even further, by creating a brick-and-mortar type business, maybe something like renting out equipment, but I ultimately decided against it. I figured it would likely require too much upfront capital and be too difficult to make it successful. In other words, it wouldn't qualify as a passive investment (since it would require work to get rolling).
I believe this challenge will be beneficial not only for me, but for you as well. I will be providing my expectations, reflections, and real-life returns on these various investments so that you can be better informed as you invest your money.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.