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Passive Income: 10 Ways to Make Money While You Sleep

Passive Income: 10 Ways to Make Money While You Sleep

2. Dividend index funds and exchange-traded funds

You can also invest in index funds or exchange-traded funds that hold dividend stocks rather than picking and choosing individual stocks to buy.

This is a form of passive investing for those who prefer a more hands-off approach.

Index funds hold a well-rounded selection of many stocks that aim to mirror the performance of a given index, such as the S&P 500. A dividend index fund will invest in a selection of stocks that pay dividends. Index funds can help balance portfolio risk, as market swings tend to be less volatile across an index compared with individual stocks.

Dividend ETFs offer the diversification benefits of index funds while mimicking the ease with which stocks are traded. To invest in dividend stocks, index funds, ETFs or other publicly traded assets, you’ll need to open a brokerage account if you don’t already have one.

3. Bonds and bond index funds

Rather than buy an ownership stake in a company through stock, bonds are a way for investors to lend money to companies — as well as federal, state and local governments — and collect interest income. Bonds are considered a safer investment than stocks, but also generally earn a lower return on your investment. For example, from 1926 to 2017, government bonds earned a compound annual return of 5.5%. An index of large stocks earned 10.2% during the same period, according to Morningstar research.

Experts suggest investing a portion of your portfolio in bonds because of their lower volatility and relative safety compared to stocks, then having a higher ratio of bonds in your portfolio the closer you are to retirement.

4. High-yield savings accounts

Another way to earn passive income (albeit at a lower level than stocks and bonds) is a high-yield online savings account, which can be ideal for growing your emergency fund. The interest paid by savings accounts is added to your balance.

High-yield accounts are a type of federally insured savings account that earns an interest rate that’s often much higher than the national average. The APY of these high-yield accounts may vary slightly, and over time, those small differences add up to real cash, so it pays to shop around for where you put your savings.

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