This is a guest post by FarmTogether
When you think about your portfolio, you’re likely to turn your attention to investments like stocks, bonds, investment funds, and alternative investment if you’re well diversified. Not every investor adds a critical piece of the puzzle, however: passive income.
Passive income can play a major role in how you build and engage with your portfolio. When you invest in income generating assets that pay out over time with minimal engagement, you’re availing yourself to a steady income stream that rests alongside your job or other active income sources.
Investments that create passive income can therefore be an excellent addition to your portfolio. This is especially true if the bulk of your investing efforts are geared towards a comfortable retirement, rather than generating capital appreciation in the short-term.
Whether you’ve considered passive income investments before or want to seek out a new opportunity, here’s what you want to know about how passive income can complement your existing assets.
Passive income has a broad definition that encompasses any investment that generates income on its own. This could include profits from renting out a home, stock dividends, or other instances in which you have an ownership stake in something that generates income. Unlike other forms of income, such as a monthly salary, passive income is considered to require less work on your part.
It’s worth noting that passive income still requires some level of engagement, whether that means working to find the investment opportunity or paying for repairs to a rental property. Compared to income generated from work, passive income streams help break the link between time you directly spend working on something and the money you earn from that activity. It is also a great way to help diversify income streams.
The ways in which investments can generate passive income vary depending on what they are. The most common example, real estate investing, generates passive income by way of recurring rental payments. Once you’ve paid for any maintenance expenses, servicing fees and any applicable taxes, the remainder of the rent is yours to use as you see fit. You might own and rent out a property outright, or buy shares of a real estate investment trust, or REIT. Either way, the same general principles apply.
Dividend stocks are another example of how you can invest capital and turn it into a recurring revenue stream with little active work on your part. When you invest in stocks with a track record of paying dividends, you’re opening yourself up to the potential for recurring income whenever the stock pays out. Bear in mind that not all stocks generate dividends; there’s no guarantee that dividend stocks will continue to pay them out to shareholders in the future, either.
There are other passive income investing opportunities out there, of course. For example, some more novel ways to generate a passive income, aside from real estate and dividend stocks include buying eCommerce stores or investing in music royalties. Over the past few years, several new platforms have emerged that allow retail investors to get access to these previously hard-to-access asset classes.
Given how many passive income options there are, as well as a whole host of pros and cons for each, it can be difficult to figure out exactly what kind of passive income investment is right for you. Few are surefire things that are guaranteed to pay out; those that do guarantee payment tend to offer less money than riskier options. That said, there are still options out there to have the best of both worlds.
Farmland investing, the asset class FarmTogether is focused on, is one of the best passive income-generating investments around. That’s because farmland has appreciated in value each decade since the mid-1980s, and has remained stable even when other investment classes haven’t. When you invest in farmland, you’re able to generate passive income on the appreciation in value of the underlying land as well as income generated from the farm itself. This can help you build long-term passive income while you hold your farmland investment in your portfolio.
Real estate of almost any kind can also be a source of passive income, so long as you know which kind of opportunity is right for you. Personal ownership of a rental property avails you to the biggest payout, but also comes with the most responsibility. As a landlord, you’ll be responsible for working with tenants, addressing issues with your property, performing routine maintenance, making repairs, and ensuring that your property is in good enough condition to be rented out. REITs, on the other hand, take all of these responsibilities out of your hands; you’ll get a portion of the overall earnings after these expenses (and the trust’s management fees) are paid out.
Other investments that can create passive income can also be worth your while, depending on your risk appetite and liquidity. Bond ladders can generate steady income, but the amount of passive income you’ll make may not be much compared to other options in the world of real estate investing. If the primary objective is to generate some form of passive income, however, this conservative strategy may have its advantages.
There’s a wide variety of passive income investments out there, which means you’re likely to find a specific investment type that works best for your income goals. If you’re looking to maximize your returns by way of a steadily performing investment that has a proven track record of growth, then farmland investing may be the best option.
Accredited investors can get started with FarmTogether from $15,000. From there you’ll unlock a variety of agricultural investing opportunities to fit into any portfolio strategy. FarmTogether’s team of professionals can help you identify the right option for your needs depending on the length of your investing window, the amount of money you want to invest, and the individual attributes of each farm included on the FarmTogether platform.
Learn more by visiting the FarmTogether website.
At Koia, we allow you to start investing in tangible assets for as little as €50, via fractional investing. Our experts make sure to source and buy the best assets, and we take care of authentication, storage and insurance. All of the benefits, with none of the hassle.
The articles and information made available on Koia are provided for information and educational purposes only and do not constitute financial advice. You are advised to consult with an independent financial advisor for advice on your specific circumstances.