It's fair to say that the year 2020 has been a challenging one, quite unlike any other in our lifetime. As well as taking the lives of millions around the world and putting healthcare systems under severe strain, the coronavirus pandemic has had a significant economic impact.
Many businesses have had to shut down while people across all industries have lost jobs or been put on furlough and the effects of this financial uncertainty are sure to be felt into 2021 and far beyond.
But as we approach January and what is hopefully the start of a better year, there may be some steps you can take to help protect your financial future. Passive income investments could be an avenue you wish to explore. But first, you'll need to understand what they are, their benefits and the various options available to you.
What is passive income?
Passive income refers to money you earn that does not require regular management to maintain. There are some forms of passive income that may take a bit of work to get set up initially, but once they're established the idea is that they take minimal effort to sustain.
What are the benefits of passive income investments?
The obvious advantage of these types of investments is that they require very little management on your part. But beyond that, passive income investments can help to:
Boost your income
Create the potential for early retirement
Provide added financial protection in the event of redundancy
Offer an additional income stream if you can no longer work for any reason
What are some different types of passive income investments?
There are a few different ways you can build a passive income. Here are just four of them:
Index funds: A portfolio of bonds or stocks that are set up with the idea of matching the make-up and performance of a financial market index. They have lower expenses than funds that are actively managed and are based on the idea that the market will perform better than any individual investment.
Foreign exchange: This type of trading, also known as forex trading, offers you the chance to exchange national currencies against each other. This may sound like an investment strategy that requires a lot of management, but you can use automated systems that are set to trigger trades at pre-determined parameters.
Dividend stocks: This option is where you can buy shares in publicly traded companies and, as the business generates profits, a percentage of those are separated off and returned to investors in the form of dividends.
Real estate: You could also invest in the housing market to offer a longer-term source of income. For example, you may wish to purchase one or more properties and subsequently rent them out to tenants. If you choose your location(s) wisely, you're likely to always have a demand that will ensure a consistent, passive income well into the future.
