Have you ever wanted to live a life of financial freedom: traveling, spending time with your family and working for the good of the local community? Perhaps you’ve come across books like ‘The Four-Hour Work Week’ or ‘Rich Dad, Poor Dad’ and you also dream of doing something similar. The common denominator with guides to a financially free lifestyle is building up a passive income: reducing the reliance on working a traditional job to pay the bills.
Unfortunately, there’s no easy way to make a passive income online. While there are stories of those who struck it lucky with a million-dollar app or a viral YouTube video made over a weekend, this is the exception rather than the rule. Most passive income streams require a high amount of upfront time and investment but then allow you to sit back and enjoy the returns with minimal ongoing maintenance. So, what are some of the best ways to make a passive online income?
Invest in the Stock Market
Investing in the Stock Market is one of the most commonly used passive investment techniques. The S&P 500, an American stock market index based on 500 large US companies, has achieved an annualized return just over 9% over the last 25 years. If you’d invested a single dollar in 1970 and reinvested the dividends since then, it would now be worth $100.36!
In recent years, investing in the stock market has become much easier and cheaper through the increased popularity of passive tracker funds and ETFs. Instead of employing teams of stock pickers and fund managers to actively manage investments, these passive funds just track the index. This strategy cuts costs. The iShares Core S&P 500 index for example, which tracks the S&P 500, costs just 0.04% of your investment amount per year (http://etfdb.com/etf/IVV/).
Data from the Financial Times and Credit Suisse shows that ETFs have grown from about 2% of US trading by value in 2000 to over 30% in 2016, showing how popular it has become with investors. In general, the trend has been to aggressively cut management fees and give the maximum return to investors.
Invest with a Robo-Advisor
Robo advisors are a new trend in investing. They use algorithms to build an investment portfolio for their users, often splitting their funds between equity (stock market) investments and bonds (fixed income). They do this via low cost ETFs to keep management costs low. In Europe, some of the most well know Robo-Advisors are ETFmatic (Euro-wide) or MoneyFarm (Italy, UK). They have the advantage over direct investment in ETFs as they reallocate your portfolio according to your investment goals, but have the downside of adding additional fees.
Invest in Peer-to-Peer Lending
Peer-to-eer lending is great for those who want to make a passive income online. The rates of return are high (e.g. up to 12% on VIAINVEST) and investments have less volatility than stock market investments. The reduced volatility makes peer-to-peer lending particularly attractive for those who want to supplement their income, as they can predict with relative accuracy what their future income should be.
Invest in Property
Buying a property and renting it out is an established additional income stream for those who can afford it. However, it can be far from ‘passive’ once you run into problems with tenants or unexpected emergencies on your properties. There are a growing number of real estate crowdfunding platforms which allow you to invest in shares of managed properties, but notably these come with additional management fees.
Create a Virtual Product and Sell It
Whilst the methods mentioned above all require an up-front investment, what can you do if you want to build a passive income online but don’t have any financial capital to spare? Creating your own product and selling it requires much more of your time up front, but can be very satisfying and potentially lucrative.
Paid online educational courses and tutorials are a booming market segment generating over $100 billion a year in revenue. If you have an area of expertise you can create and sell your own online course. Udemy and Teachable are among the leading providers and a good place to start for more information.
Books, eBooks & Online Guides
If you have a way with words, you can write a book. If not, you can pay someone to ‘ghost write’ it for you! This blog post follows an author who wrote a book in 3 days, printed copies on demand and self-published it via Amazon. If you write a novel or content which is ‘evergreen’ (always relevant), this can provide an ongoing income stream from royalties and book sales.
An online guide is alternative monetisation strategy. You can post the guide online for free and add adverts or affiliate links to the website.