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March 9, 2023

Have $10k To Invest? 5 Best Strategies for Passive Income

Many generations are putting their money toward earning passive income as a means of reaching financial independence.

Passive income, as a quick refresher, is a source of income that requires little to no effort to achieve it. A few examples include a photographer selling stock photos online or an influencer participating in affiliate marketing.

If you have $10K to invest, which passive income stream (or streams) would offer you the greatest ROI? Here are the best strategies for generating passive income.

STRUCTURED NOTES
A structured note, according to the SEC, is a structured product combining a bond with a derivative component. It offers a full or partial return of principal at maturity.

Bob Chitrathorn — CPFA, CFO and vice president of wealth planning at Simplified Wealth Management — recommends investing in structured notes that have principal protection. Doing so, Chitrathorn said, can give you a 10% return each year.

“If the market is up at all one year from the date of purchase, you can get 10% return. If it is down, your principal is still protected but rolls into year two. If at the end of year two the market is up at all from two years ago, you get 20% return,” said Chitrathorn.

REAL ESTATE
As a broad category, real estate is a popular option for passive income. However, investing with $10K is a bit difficult to do since most cannot buy property for that amount.

But it is still possible for those with $10K to invest in real estate. Jeff Holzmann, chief operating officer at RREAF, said the best option is to co-invest with a seasoned sponsor. Doing so will “pool” your investment with others.

“If you invest directly, the fees and other costs such as legal, due diligence and fund admin will outweigh your nominal dollar return,” said Holzmann. “This is why it’s best to rely on an experienced operator and invest alongside them until you have enough funds to buy your own asset.”

There are also several real estate investing apps that make this process simple and you can get started for amounts of $10K down to just $10. Check them out here.

ANNUITIES
One of the most reliable passive income strategies are annuities. According to Investor.gov, an annuity is a contract between you and an insurance company. You can buy an annuity in a single payment or a series of payments. The insurance company requires the insurer to make payments to you, now or in the future.

“Generally, annuities are one of the simplest and most efficient products on the market for generating income,” said Paul Tyler, chief marketing officer at Nassau Financial Group. “You transfer money to an insurance company and immediately start receiving regular paychecks which won’t outlive.”

FRANCHISES
Kenny Rose is the CEO at FranShares, a service offering fractional ownership in franchises to retail investors. Rose recommends franchises as a passive income investment.

Until recently, franchises weren’t exactly the ideal option for passive income. They had high startup costs, which could start at $100K, and required either the owner or someone else appointed by the owner to manage the franchise.

However, Rose said new online services have emerged to offer fractional ownership of alternative investments including franchises. Now, it’s possible to buy shares in a portfolio of franchise locations as easily as investors would buy stocks or mutual funds.

“Savvy investors and celebrities like Shaquille O’Neal and Patrick Mahomes have long prized franchises for their ability to deliver diversification, stability and passive income streams,” said Rose.

INDEX FUNDS
Kendall Meade, CFP and financial planner for SoFi, said investing in a portfolio of stocks known as an index fund is a great option for passive income. However you decide to invest your $10K, Meade recommends being diversified with your investments.

“Index funds can be a great, inexpensive way to invest but we still want to make sure we are diversified because some index funds may just represent one sector within the market,” said Meade.

By diversifying your investments, you won’t invest all of your money in one asset class. Meade said those who need extra assistance in diversifying may find help through a robo-advisor. The best robo-advisor will make sure you’re properly diversified and rebalances to maintain your allocation.

 

This article originally appeared on Go Banking Rates