Today, we are going to get into the more rewarding, personal methods of investment. In all of the previous posts on this blog, we have focused on laying the foundation of personal finance, and if you’ve followed along to this point you’re ready to start investing. In my experience, passive investing seems to be the best way to test the waters of different markets without getting lost in those same investments. The key thing about passive investing is the long term mindset which comes along with the method. Passive investing is not meant to make millions in a month, or even a year, but instead to build wealth over a lifetime. Lets go over a few different passive routes that have shown success in the past.
The Stock Market
Although the stock market is the stereotypical place to invest money, there are a variety of different ideologies and theories used to approach entering the game of stocks. Due to the long term nature of passive investing, the only approach we will discuss today is the buy and hold strategy. There is a prominent method in the investing world called Dollar Cost Averaging (DCA), which is basically putting a percentage of your income into the market at set intervals, forever. This is comparable to viewing your portfolio as a savings account, and putting your money into the stock market can earn you ROI many times higher than the national average. If this route piques your interest, you may also consider looking into stocks which pay dividends, because over time the dividends may cover your living costs and voila, you are earning passive income.
High Yield Savings Accounts
I know what you’re probably thinking, more boring saving advice… but hear me out. In the previous posts, we have pretty much covered everything there is to know about saving, but there are unique savings accounts which have much higher interest rates and sometimes better compounding periods. These are called high yield savings accounts, and they are literally made for passive investing. Similar to DCA in the stock market, high yield savings accounts work best when you are consistently putting as much money as possible into them. This route of investing might be for you if you prefer a hands off approach because once you deposit the money, you don’t have to do anything else. Over time, you will watch your money grow exponentially if you keep your long term time horizon in mind.
I saved this option for last, because although owning rental properties is considered a passive investment, it requires much more dedication and capitol to make this route worthwhile. The basis of passively investing in rental properties is generating cash flow on a property by renting the unit for more than it costs to acquire/maintain it. For example, if all of the monthly expenses on a property total $2000, and you can charge the tenant(s) $2500 for monthly rent, you can earn $500 per month for doing next to nothing. The benefits don’t end there, because while you are still earning passive income every month, your tenants are also paying off your mortgage for you. That means if you have a traditional 30 year loan, you will own that property outright in 3 decades, and you got paid to do it. Real estate investing deserves a whole post on it’s own, so I won’t overload more information here, but owning rental properties is a phenomenal route of passive investing if you have the time to learn and understand the fundamentals.
In conclusion, passive investing is the most logical method of investing for beginners, because it doesn’t require vast amounts of attention or effort. There are also a variety of methods not listed which makes passive investing diverse enough to benefit people with different values in mind. I encourage everyone to research different savings accounts or stock brokerage firms to see if any of them suit you. Thanks for reading and remember, the earlier you start practicing personal finance, the earlier it’ll pay off!