In tough economic times, people look for ways to generate additional income. Even during a strong economy, people may want a second income to pay down debt or to save for a specific goal. While a part time job is the traditional method of making extra cash, itâ€™s also possible to find more passive method of bringing in money.
For the largest returns, real estate investing is a popular method of making money, through either rental income or the profits from selling the property. In most cases, the income is not completely passive, as the owner must either provide the maintenance and physical improvements, or pay for someone else to do it. In a strong real estate market, itâ€™s possible to turn a substantial profit quickly. Contrary to popular belief, however, real estate does not always appreciate, and when property prices drop, it can easily turn into a money pit instead of generating income.
Investing in businesses can also provide a stream of passive income. Providing start-up capital in exchange for a share of future profits enables silent partners to receive regular income with minimal involvement in the business. Most business investment opportunities, however, require large initial investments, and how the business performs is largely out of investorsâ€™ control.
A well-rounded portfolio of bonds, funds, and dividend-paying stocks can eventually generate a second income, provided it meets some conditions. The return on the investment must always exceed the inflation rate, and investment must be consistent over time. The diversity of the portfolioâ€™s holdings allows the investor to ride out changes in the market, and minimize the risk. While managing a portfolio takes some time and effort, it is minimal in proportion to the returns. Time, proper planning and consistent investment can generate enough dividend income to replace a paycheck, or to provide supplemental income for the future.