Image source: Getty Images
Some people do a web search on passive income, just to see what ideas pop up. I’m one of them and I see queries like: “What’s the fastest way to earn passive income?”
That worries me a bit, and it makes me think of my number one rule when I try to build up some income.
Avoid get-rich-quick schemes
A get-rich-quick mentality is an issue with all kinds of investment, and I’ve seen it pop up many times over the years.
But the idea is to avoid anyone trying to tell us how to get rich quick.
There’s a news story right now about some investors suing over some non-fungible tokens (NFTs) they ploughed big money into. Sadly, they didn’t make them into overnight billionaires.
I also see headlines proclaiming the secrets of getting rich from cryptocurrency in 2023.
So, no, I say toss all get-rich-quick ideas where they belong, in the trash.
Look beyond 2023
I can think of only one way to take home some serious passive income right now, in 2023. And that’s to already be rich.
If I had a million, I could buy a 4% Cash ISA and take home £40,000 per year. Well, as long as the 4% offer lasted.
But I don’t have a million, and neither do most people.
So, my goal is to build an investment pot over the next 10 years and more, to provide passive income for when I’m older.
Eggs in baskets
People often come up with what seems like a great investment idea. And they’ll put every penny they have into it.
That can sometimes be successful. But it can also lead to spectacular pain.
I invest in bank stocks. But only as part of a diversified Stocks and Shares ISA. I’d never go all in on one investment.
So, imagine I’d had all my money in a single bank stock when the financial crisis hit? I know someone who did, and it wiped out his life savings.
Maybe we might fancy a rental property, a high-tech kickstarter project, or even, dare I say, some cryptocurrency or NFTs?
People have made money from all of them. But I’d say it’s too risky to go for any one on its own without diversification.
Whatever end investments we might like, I see one killer way to go for them. And it’s an approach that hits all these top tips in one go.
Shares on the UK stock market, held in a Stocks and Shares ISA, that’s what I want. It’s not risk-free, but it’s a tried and trusted approach.
I go for good dividends, and I buy more shares with the cash. That way I aim to build up a passive income pot over the years.
But what if I want to try property rental? Well, I could buy a real estate investment trust (REIT), and spread my risk across many properties. Fancy Bitcoin? Shares in a crypto miner might be less risk.
It goes for any kind of enterprise, really. Whatever I fancy, I can almost always find a company doing it, and buy shares.