2. Dividend Index Funds and Exchange-Traded Funds
Instead of selecting and purchasing specific stocks, you can invest in index funds or exchange-traded funds that hold dividend stocks.
For individuals who want to invest passively but with less involvement, there is this option.
A well-rounded selection of numerous equities are held by index funds, which seek to replicate the performance of a particular index, such as the S&P 500. A dividend index fund will invest in a number of dividend-paying equities. Since market fluctuations are typically less volatile across an index than they are for individual equities, index funds can aid in balancing portfolio risk.
Dividend ETFs mirror the simplicity of trading stocks while providing index funds’ benefits for diversification. If you don’t already have one, you’ll need to open a brokerage account in order to invest in dividend stocks, index funds, ETFs, or other publicly traded assets.
3. Bonds and Bond Index Funds
Bonds are a mechanism for investors to lend money to businesses as well as to the federal, state, and municipal governments while also earning interest, as opposed to purchasing a part in a firm through stock. Bonds are regarded as a less risky investment than stocks, although they often yield a lesser rate of return. Government bonds, for instance, generated a compound annual return of 5.5% from 1926 to 2017. According to analysis by Morningstar, an index of major stocks made 10.2% over the same time frame.
Because bonds are less volatile and more secure than stocks, experts advise investing some of your money in them. As you get closer to retirement, you should increase the proportion of bonds in your portfolio.
4. High-Yield Savings Accounts
A high-yield online savings account is another way to generate passive income, albeit at a lower level than equities and bonds. It’s great for building your emergency fund. Savings account interest is tacked on to your balance.
A type of federally insured savings account known as a high-yield account offers an interest rate that is frequently significantly greater than the national average. It pays to search around when deciding where to place your savings because the APY of these high-yield accounts may vary somewhat, and over time, those tiny variances add up to real money.
