How to invest $1000 in 2021 and start building passive income. Saved up money and not sure where you should be investing it?
In this video, I’ll go over multiple different passive income investing strategies. While ‘making money while you sleep’ sounds really cool – the honest truth is, it’s a lot of hard work to get up off the ground.
The good news – is once you start to get momentum, it does get easier and you can literally make money doing nothing (or almost nothing).
- REITs (Real Estate Investment Trusts)
Real estate investment trusts or REITs as they’re more commonly known are a great way to get exposure to property markets without having all the hassle and stress of managing tenants, finding deals, maintenance and so on.
- Index Funds / ETFs
Index funds (especially ETFs) allow you buy multiple companies at once instead of buying individual shares. This allows you to de-risk your investment and get exposure to a range of companies in a sector, country or market. ETFs are especially popular because they have lower fees than traditional managed funds, and in many cases actually outperform active investors (see video).
Bonds are a great defensive asset to have in your portfolio, and while the returns aren’t always necessarily mind-blowing, they do allow you to diversify and hedge against more risky/aggressive parts of your portfolio.
- Dividend Stocks
Dividend stocks are a great blend of getting cash-flow AND capital growth (usually!). Who doesn’t love regular (usually quarterly) payments sent to them.
- Alternate Passive Income Strategies
Other passive (or relatively passive) income strategies include things like affiliate marketing which is lots of work to set up initially, but ongoing can be very low maintenance income, and less common things like vending machines etc. Overall the ones in this video are the main passive income strategies most people would go with.
Hope you’ve found that useful and if you have any questions of comments let me know below.
Related topics: How to invest $1000 for passive income, how to make passive income in 2021, passive income 101, passive income ideas, passive income ideas australia.
Good day, Ray Corcoran here. In today’s video, we’re going to be talking about how to invest $1,000 and how to start generating a passive income. And what are some popular and easily accessible channels for you to invest so that you can make a passive income. And it’s the holy grail of investing, making money while you sleep and doing nothing.
The dark truth of it is that it does take a lot of work upfront, and usually most people, they want to jump to the passive income part straightaway. But realistically you need to start with a lot of active work and hard work before you can start making significant amounts of money through passive investing. But we’ll cover all of that as we go. And if you like the video, please make sure you like the video, it helps the video reach a lot more people. And with that said, let’s get into the video.
So one of the first ways that you can get some passive income coming in is through something called a REIT, and a REIT is an acronym for real estate investment trust. Now, the way it works is, a good thing about it is it can give you exposure to the property market. So you might be investing in stocks, but you can actually get exposure in your stock portfolio to real estate by investing in these REITs.
And basically what happens is, these people will pool all this money together and you can get a small slice. Just very much like you have a stock in a company, you own a very, very small slice of an overall thing. Exactly the same for REITs. You will be able to get access and exposure to stuff that you wouldn’t have ordinarily being able to get access to.
And typically they’re investing in commercial real estate. So it could be things like offices, it could be hospitals, shopping centres, big commercial real estate. And you can get a percentage of the profits that they make from the rents from those buildings and from that portfolio, without all the headaches of managing the property. So it’s like a low, no-stress way of getting into property.
Because obviously, anyone that’s investing in property knows there’s a lot of things that come with it, whether it’s managing tenants and repairs and all that sort of stuff. So REITs are a fantastic way to get into that. And over time a lot of long-term averages around, give or take about 10% annually.
Some other good benefits for REITs are it’s a lower entry point. So obviously with these big commercial buildings, an individual, especially someone with a thousand bucks, you’re never going to have access to a property like that for $1,000. So it’s a really good way for you to get exposure to that without actually having to buy the whole thing, which will obviously be very, very expensive.
Another thing as well, it’s good to diversify. So if you’ve got investments elsewhere, owning REITs will allow you to get exposure to different market sectors. It can help diversify you as well. And another benefit is also that liquid. Traditionally, if you buy real estate, it’s not very liquid as an asset. So if you want to sell it, you can’t just sell it with a snap of your fingers, it takes time. Whereas with a REIT you can buy and sell, just very much like you would buy a stock. So it’s a much more liquid. If you need the money in an emergency, you could take that money back out.
Your second option for developing passive income is going to be what’s known as index funds, and specifically ETFs. And they are basically funds that you could invest in. And the overall returns can vary quite a bit, but. You can probably expect to get somewhere around the 10% mark from these ETFs over time.
The good thing about indexes is that you can get quite steady growth. And while you might not get astronomical returns, you can get pretty reliable safe returns over time. Index funds and ETFs actually often have, will pretty much always, have lower expense ratios and lower fees compared to actively managed funds. And there’s a lot of studies done that show that typically, and this is a big generalisation, but typically more actively managed funds really struggle to outperform more passive funds that just follow the trends of the market.
And one of the reasons that index funds are a little bit more safer is you’re not buying just one individual stock, which can be quite risky. The stock can go really, really well, but it can also get really, really bad. So an index, so you buy an index, you’re buying basically a tiny share of multiple companies.
So one example is the S&P 500, that’s the top 500 companies in America in terms of size. And you can own, instead of buying 500 individual shares, which would be expensive and time-consuming, you can buy just one share of the index and get exposure to all of those at the same time.And because of the way the index works is it’s the top 500 companies in the country. So if one starts performing really bad, it will drop out of the top 500 companies in the country and it will be replaced by something else that’s performing better than that. So it’s a much less risky way to do things.
So the Vanguard S&P 500 ETF, VOO, that’s actually returned around 13.8% per year for the last 10 years, so you can get … And that will probably average out, it’d be up and down over time, but Vanguard is known for their low expense ratios and low cost. And that also helps you get a better return, because you’re not getting your returns eroded by fees every single time and every single year.
So the third one we want to look at is bonds. The way a bond works is basically like you’re giving a loan. So you give your $1,000 as a loan to a government or company, and they’re traditionally a much safer asset. It’s a safe, it’s considered a defensive asset, less risky, more reliable. Lower return, but much more reliable and predictable.
And basically what you’re doing is you give them an amount of money, usually over a set term, it could be months or years. And then at the end of that term you’ll get your money back plus some more. And basically, typically companies, you’ll get a higher return, but there’s also the risk of that company going under. Whereas with governments you might not get as good a return, however, the chance of them paying you back is very, very high.
So a lot of people put that in their portfolio to balance out against some more risky stuff as well. And while every bond could vary, the kinds of returns, you could probably get probably somewhere between maybe three to 6%, but that can vary quite a bit. But generally, the return you’ll get with bonds will be lower than something that you’ll get with a higher risk option like stocks and that sort of stuff.
Number four is dividend stocks. So these are stocks that pay a dividend. They’ll basically give you as a thank you for owning the shares and investing in backing them. They will give you a percentage of their profits, typically on a quarterly basis. And basically the way it works is they’ll make a certain amount of profit. Then they’ll say, “All right, we’re going to allocate a percentage of our profit to give back as a dividend to our investors.” And then you will get, depending on how much of their stock that you hold, you’ll get X dollars per share.
And so the percent that you get back per share is called the dividend yield. And the way that you work that out is the annual amount of dividends paid, divided by the stock price, the current stock price. So if you got $1 in dividends paid and the stock price was $20, then your dividend yield will be 5%. So dividends can be a really, really good way of you getting regular cashflow multiple times per year from your investment.
So there’s a lot of other options in terms of generating passive income. There’s lots of weird and quirky side things that you can do to make more money while you sleep. And it sounds good, but realistically, they’re the main ones that people would consider. You can do other things that may require a tiny bit of work, but not that much. Stuff like affiliate marketing.
Some of that stuff you can do blog articles where you talk about a specific product and give a review of that product. And you can have a hyperlink in the post about that product. And if a visitor clicks on a link, goes to their site, signs up for their service, it might be a hundred bucks a month. They might give you 10 bucks or 20 bucks per month forever, as long as that person’s a customer basically. As a commission for saying, “Thank you for helping us get a customer.”
So that sort of stuff can be quite popular as well. Another one is stuff like vending machines. It’s not no work, but it’s probably a minimal work day-to-day. You don’t need to spend 40 hours a week on it. That can be a good one as well. But ultimately, personally, I think that you should stick with the ones I’ve already mentioned. I think they’re better options for most people.
The final thing I would say is around, some people try and build up their passive income. Passive income takes time to build, and it takes active effort to build it. So you shouldn’t be trying to get a million dollars in passive income straight away. I think for most people, and obviously I don’t know your situation, I’m not a financial advisor, that sort of stuff, you should really work on early on building up your active income a lot faster. Because even if you’re making all right returns, maybe seven, eight, nine, 10% returns, in the scheme of things you could probably make a lot more money faster by just working even harder with your active income and really trying to build that quickly.
And obviously we want to move that active money into passive things as we go. But if you’re in a race to try and get as much money as possible, as soon as possible, I really encourage you to work really hard on your active income the most. And then you can funnel it into other investments that can help you compound it and aren’t connected to your personal effort as much.
With that said, I hope you enjoyed the video. If you have any questions, let me know, happy to help you out. And if not, like the video, subscribe, all that sort of jazz, and I’ll see you on the next video.