Passive Income Investing Strategies – Earn Monthly Income from Your Investments

money timeThe majority of people think of retirement accounts when the topic of investing comes up. Most “regular folks” are interested in building up a nest egg by investing in a 401k or a Roth IRA. However, investing can be about more than just preparing for the distant future. Investing can actually help you right now.

When you build an income investing portfolio, you can create a reasonably stable source of passive short-term cash flow, while simultaneously building up long-term investments. There are many options when it comes to this type of investing and it can be a great way to get somewhat instant gratification.

Take a look at the following to start planning your own income portfolio.

What Is Income Investing?

Just as the name implies, an income portfolio is a collection of investments that yields regular income. This means that you receive cash on a regular basis, usually quarterly, semi-annually or annually, without needing to sell the investment.

An income portfolio is usually comprised of different investments that result in some sort of predictable payout. Some investments that you might include in an investment portfolio are:

  • Dividend-Paying Stocks. Dividend stocks are those that pay out a portion of company profits at regular intervals. You don’t have to sell your stock; rather, the company issues you payments based on the number of shares you have. This dividend payment is similar to profit sharing, since you get a portion of what the company has made.
  • Bonds. When you invest in bonds, you essentially lend money to an organization. Throughout the life of the bond, you earn interest. In many cases, the interest you earn is sent to you regularly. When the bond’s term expires, you receive the principal back. (You can then invest in another bond if you want, and receive even more interest as income.)
  • CDs. In many cases, it is possible to arrange for the interest you earn from a certificate of deposit to be paid to you on a regular basis throughout the term of the CD. A CD is also one of the safest investments for your money.
  • Annuities. These are complex financial products that you should carefully consider. Some people like to include them in an income portfolio, since you receive a regular payout. If you get an immediate annuity, the payments to you begin quite quickly; otherwise, you have to wait a certain number of years to start receiving your regular income.
  • Peer-to-Peer Lending/Microloans. You can also include loans made to others in your income portfolio. As your principal is paid back with interest, you receive regular income that you can spend, or that you can re-invest. Many investors keep the interest earned and reinvest the principal. Check out online peer-to-peer lending marketplaces like Lending Club or Prosper to get started.

As you can see, there are a number of options available when it comes to building an income portfolio. So, how and where do you begin?

Building Your Income Investment Portfolio

The best way to start any new investing venture is with some thorough research and number crunching. Here are three things you can do to make sure you are choosing the right path.

1. Consider the Capital
Clearly, if you want to be able to receive a significant stream of income immediately, you will need a large chunk of capital to get started. For example, the interest from a single $500 Treasury bond isn’t going to allow you to buy groceries on a regular basis, much less keep you in comfort. And in the case of many immediate annuities, you will need at least $150,000.

Feeling a little out of your league? Don’t try to tackle it all at once.  For most people, building an income portfolio is a project that takes some planning and time. It’s about adding income investments as you go along, waiting for the cumulative effect of a burgeoning portfolio to do its job.

2. What Are the Risks?
Figure out how much money you can set aside each month to help you build an income portfolio. Use that money to purchase the investments that you have decided on. You will need to consider your risk tolerance as you start your income investing portfolio, since there is a chance that you could lose money. An organization could default on a bond for example, or your peer-to-peer loan could be charged off. Additionally, companies selling annuities can be shut down, and your dividends could get cut. Consider these factors and think about whether it makes sense to diversify to some degree.

3. Take It Slow
One of the easiest ways to get started with building an income portfolio is to invest in dividend paying stocks. You can buy partial shares, so you don’t need the capital to buy an entire share at once. It is also possible to invest in income-oriented funds that have a collection of dividend-paying stock and bonds. You can slowly build your holdings until your portfolio is big enough, such that the income stream generated is not only useful to your budget, but will also allow you to diversify your investments.

Final Word

Investing doesn’t have to be all about retirement and the remote future. Those things are important, and you should keep an eye on your eventual financial fate. But, you don’t have to place your entire focus on it. You can enjoy the fruits of investing right now, while laying the foundation for your future, by building an income portfolio.

Have you had success with income investing? How has it affected your outlook and cash flow? Tips and experiences are welcome in the comments below.

  • Alan Cohen –

    This is a great article. It brings up an important point that people may have many different goals that they are saving for – and thus may want to customize or allocate their investment dollars different for a short term goal than they might for retirement. In fact, some polling we have done internally at shows that saving for retirement is not the top goal for most people. So I’m happy to see articles like this that acknowledge the need for shorter and longer term investment goals.

  • Lulu

    I am currently receiving income from Peer to Peer Lending as part of my initial investment strategy. I receive about $25 a month on about $850 in loans and plan to increase the amount I invest in the future. I also just started getting into stocks but the dividends are being reinvested automatically so I do not get any income from that. At $25 a month that is not enough to live on but it does give me an idea of what is out there.

    • Matt

      Lulu – so you’re invest in loans w/ an average of 35% annual return? That is risky! I’ve done p2p as well and I was burned on a 15% loan….now I only lend to 8 – 10%. Good luck and as always be careful when dealing with such risky loans!

  • Miranda

    I agree that the most important thing is to just get started. As you learn more, get a little more capital, and become more comfortable, then you can increase the amount of money you invest, and develop a plan to better fit your needs.