There are many ways to make money, and while we all want to get rich as quickly as possible, we need to manage risk vs reward. Short-term gains through active investments are exciting and have the potential for an instant influx of cash that can either be spent or reinvested to maximize your net worth. While this may seem attractive, it comes with volatility and may be above your risk tolerance.
Are you looking for long-term growth that doesn’t require you to be as hands-on in following the market?
Active vs Passive Investing
There are two basic types of investing: Active and Passive.
Acting investing involves methods of traditional investing where you use market analysis and expertise to make timely investments and trade initiatives for both buying and selling. You take advantage of flexibility in volatile markets and use strategies like hedging and shorting the stock to beat the market index through frequent trading.
Passive investing takes the opposite approach and adopts a buy-and-hold model. Your goal is to make gains over the long term as the investment goes through ups and downs and is a ”set it and forget it” approach. You will have lower trading costs, decreased risk and higher average returns throughout the investment vehicle.
Investing In Mortgages
Mortgage investments is another option that has you lending money to someone who then buys property. The investment is secured to the property, so it almost eliminates any risk, and usually, your money will stay in the investment over the long term.
There are four main types of mortgage investing:
Public Mortgage Fund
This is a publicly traded fund made up of mortgages, and you can buy and sell at any time.
Private Mortgage Funds
A private mortgage fund is not publicly traded, so you may not be able to get your investment back immediately.
This is a lending situation you initiate with a borrower to fund the purchase of a property and is a private arrangement between a lender and a borrower. This can be a family member, a friend or someone else that is looking for money.
A mortgage syndication places you with other investors into a group or syndication. You will acquire a fractional interest in a mortgage, and there may be multiple mortgages that you invest in and are on title for.
Passive investing should be seen as your main investment strategy for long-term growth. That doesn’t mean you shouldn’t also have active investments in your portfolio. You can manage your risk using both types and reap the rewards each may bring you.
Here is a solid passive investment strategy.
Start with Proven Investments
Passive investing takes advantage of investments that track the benchmark index and give you a diverse portfolio to produce an average market return. It will usually include the following:
These companies buy and sell stocks and bonds in your name, and it pools together other investors with professional management for greater diversification.
Exchange-traded funds follow a collection of stocks or and index and are traded on an exchange like a single stock does.
Index funds track their performance on an index and can be a mutual fund or EFT.
These are the bread and butter of passive investing, but there are other “off-menu” opportunities.
Real estate is your classic buy-and-hold investment, and while some people purchase a rundown house to renovate and flip for a profit, it is safer to buy and hold for the longer term. Real estate always goes up, except when there is a turn in the market or a crash, but you can make a huge profit in the long term.
You can also live in the home or rent it out, which gives you additional passive income at the same time. Some of the biggest gains in investing are with real estate.
Peer To Peer Lending
This investment strategy has you lending money directly to a person or business over a specified term. It can be done individually, through crowdfunding or lending clubs.
There are different participation requirements, and investors can group fund loans of almost any amount, big and small.
One of the simplest ways to create passive income is through dividends in public companies. These investment stocks generate earnings that are funnelled back to investors in the form of dividends, and you can either pocket the money or reinvest it to buy more of that stock.
It pays you the income you don’t have to work for, and if you can build up dividends stocks over time, it can amount to enough to live on.
The key is diversification with all investing, and passive is no different. Use these strategies to increase your portfolio and grow your investments using time as your biggest asset.