You can generate $500 a month in passive income through savings accounts, certificates of deposit, stocks, bonds, funds, and other investment vehicles. Each offers varying rates of return, degrees of security, convenience and liquidity. And each requires a significant initial investment to produce the required amount of passive income.
A financial advisor can help you with your investment decisions.
How to Earn $500 a Month in Passive Income
Passive income generally refers to money that you receive automatically without having to do anything, such as working for pay. The most common way to generate passive income is to buy investments that pay you interest or dividends.
Producing passive income in this manner requires putting in money rather than effort. However, once you have invested the money, you can cash checks or receive deposits in your bank account without any intervention on your part.
And there are plenty of investments you can make to produce $500 of passive income per month. Here are some of the most accessible and reliable:
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Savings account
A savings account from a bank or credit union is as passive, safe and convenient as possible. The highest paying savings accounts earn about 4.5% per year. At this rate, depositing around $133,333 will earn you $500 per month.
Certificates of deposit
Certificates of deposit (CDs) are relatively safe, a little higher paying, and a little less convenient than savings accounts. The best one-year bank certificates of deposit yield around 5% per annum. So if you buy a CD for $120,000 for 12 months, you will get about $500 in passive income every month.
Obligations
Corporate bonds are riskier than bank deposits. But AAA-rated bonds are generally considered safe and historically yield just over 4%. If you buy $125,000 of AA-rated bonds, you can expect to receive the equivalent of $500 per month. This is usually done in quarterly, semi-annual or annual installments.
Dividend-paying stocks
Shares of public companies that share profits with shareholders by paying cash dividends earn between 2% and 6% per year. With that in mind, investing $250,000 in low-yielding dividend stocks or $83,333 in high-yielding stocks will earn you $500 per month. However, most dividends are paid quarterly, semi-annually or annually.
Diversified securities portfolio
A diversified portfolio of 60% stocks and 40% bonds has returned about 6.1% per year on average over the past decade, according to Vanguard. If future performance matches past performance, which is not guaranteed, $100,000 invested in a well-chosen 60/40 portfolio could grow by about $6,000 per year. The yield includes dividends as well as price appreciation, so you may need to sell some of your investments to get $500 per month.
exchange traded funds
Inexpensive and easy to buy, passively managed exchange-traded funds (ETFs) produce returns that vary depending on whether they track stocks, bonds, or other indices. To cite an example, Vanguard’s High Dividend Yield ETF yields around 3%. You would need to invest around $167,000 to get $500 per month in passive income from this ETF.
Real estate
Buying shares of a Real Estate Investment Trust (REIT) is a popular way to get passive income from real estate. Publicly traded REITs pay dividends at an average rate of about 3%. So you would need $167,000 to produce $500 of monthly passive income this way.
Other income opportunities that are a little less passive can also provide a steady monthly income with varying efforts. Dropshipping, for example, is a business model that involves setting up an online store and taking orders for products that go directly to a supplier, who fulfills them without you having to do anything other than accept payment. .
Direct investments in real estate, such as the purchase of rental properties, can generate income that the IRS (Internal Revenue Service) considers passive income, entitling them to more favorable tax treatment than earned income. . However, managing residential real estate can involve considerable effort and attention on your part, unless you pay a management company to take care of rentals, repairs and other tasks.
Conclusion
To generate $500 per month of passive income, you may need to invest between $83,333 and $250,000, depending on the asset and type of investment you select. In addition to yield, you’ll want to consider security, liquidity, and convenience when selecting the investments you’ll use to provide monthly passive income. However, once you’ve made the decision and deposited your money, you can expect to receive regular payments with little or no extra effort.
Tips for investing
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Financial advisors help investors analyze various investment options and can help them create an action plan to achieve their goals. Before investing in passive income investments, consider speaking with an advisor to understand how it fits into your portfolio. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors who serve your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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When investing your money, it is important to diversify your assets among many types of stocks and bonds. This helps you gain exposure to multiple market sectors and benefit from their growth. Our Asset Allocation Calculator helps you select a profile that’s right for you based on your answers to simple questions.
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