For many years I worked as a Financial Planner. My husband and I together with another partner built a medium size financial planning dealership in Australia. We experienced some interesting times with the various ups and downs of the markets.
I have not worked in that profession since the end of 1999 and of course in that time much has changed with the global economy.
I am Australian and our economy has not suffered as badly as some.
I am going to discuss the methods that you can earn a passive income here. I do not make any recommendations you should seek your own advice before investing from a professional.
Passive Income – Bank Deposits
Having your money in a bank and earning interest on it is one way of earning passive income. You are lending your money to the bank. Over the years interest rates have gone up and down depending on the current economy. I remember in the eighties in Australia you could earn double digits on your deposits. Those days are gone!
I know there are countries in our current economy where the banks are paying zero interest. In Australia it is possible at the time of writing this to earn 5% on a bank deposit.
People often felt safer having their money in the bank than choosing other methods of investment. That feeling of certainty was shattered with the Global Financial Crisis (GFC) and the collapse of some major institutions.
Clearly even in Australia you need a lot of cash to earn a reasonable passive income at 5%.
Passive Income – Stocks and Shares
In Australia we tend to call stocks shares but for now I will refer to them as “stocks”.
In more stable economic times it has been thought that if you held “blue chip” stocks you could not go wrong. This would be the most passive way you could earn an income from stocks. By holding the investment and receiving your dividends.
There are more active ways people invest in stocks and there are many courses available to teach people various methods. If you are not a stock investor I recommend you only enter the market once you have done your research and taken professional advice.
Stock markets go up and down and this means so does any money you put into the market.
Passive Income – Mutual or Managed Funds
In Australia we call Mutual Funds “Managed Funds”. I am not sure of the terminology in other countries but basically these are “collective investments”. There are mutual funds that invest into a specialized area and there are funds that have a spread of investments into various investment types.
These investments are usually accessed through a financial planner. They can provide passive income and of course come with the same risks as the markets they invest into as we witnessed in the GFC.
Passive Income – Portfolio Investments Conclusion
For you to be able to live on a passive income choosing any of these methods mentioned here you must have capital. For the majority of people around the world this is not the case.