Investing For Passive Income: The 15 Easiest Strategies For Success

When you’re investing for passive income, you invest money today to make money tomorrow without the daily effort of working a job. I’ve compiled the 15 easiest and simplest strategies for investing money to generate passive income.

If you’re investing money to make money, you have numerous options, which can feel overwhelming – at least, that’s how I felt when my husband and I started our investing journey. That’s why I want to simplify the process for you. My most important criteria for these 15 strategies are that they should be simple and as passive as possible – at least for most of them. That’s why you won’t find strategies like cryptocurrency investing, day trading, or buying a small business in this list, as they are neither easy nor passive.

If you want to understand our personal approach, check out our previous post:
📌 Our 7 Easy Strategies for FIRE (Financial Independence, Retire Early) – how we invest for passive income to support our family in early retirement. Actually, we are planning for semi-retirement and share our semi-retired lifestyle here.

Savings/Money Market Accounts (MMAs) – Predictable Fixed-Income 1

A money market account (MMA) is a high-yield savings account that offers higher interest rates than regular bank accounts. However, the interest rate is variable, meaning it can fluctuate over time.

You get a less predictable passive income. But it is a low-risk and safe way of investing for passive income. Still, your return is just not as predictable as it is with CDs (see below) because of the fluctuating interest rates.

You should also know that with an MMA you are allowed to withdraw money, but that is limited to a certain amount, such as up to six withdrawals or transfers per month (as per federal regulations). So, you need to withdraw from such an account strategically.

Deposits are protected up to a certain amount. In Germany that is currently at €100.000; in the US it is around $250.000 per account holder. These types of accounts are used as emergency funds, short-term savings or for holding cash reserves.

You should consider investing in MMAs if you don’t mind getting a less predictable passive income, but prefer having access to your money anytime.

Certificates Of Deposit (CDs) – Predictable Fixed-Income 2

A Certificate of Deposit (CD) is a fixed-term savings account offering higher and fixed interest rates than an MMA. In exchange for that your money is locked in for a set period until it matures, and you can access your money. Typically that maturity ranges from a few months, like 3 months, up to several years, like 5 years. Deposits are protected up to a certain amount as they are with MMAs. Unlike MMAs, withdrawing money before maturity incurs fees, making those deposits less flexible.

CDs are ideal for investors preferring low-risk investments and seeking stable, passive income without any market volatility. With CDs a fixed interest rate is ensured, offering a predictable fixed income. CDs also work really well for short-term savings goals.

You should consider investing in CDs if you want a higher fixed return (than with MMAs) and don’t need immediate access to your money.

Corporate Fixed Deposits (FDs) – Predictable Fixed-Income 3

A Corporate Fixed Deposit (FD) is an investment option offered by companies or financial institutions instead of banks. You invest money for a set period of time and earn a fixed interest rate. Corporate FDs usually offer higher returns than bank FDs. That’s because they carry more risk, as they are not protected or government-insured. It is very important to check the credit rating of the company before making any investment choices in FDs.

You should consider investing in FDs if you want an even higher fixed return (than with CDs or MMAs), and don’t need immediate access to your money.

Annuities – Guaranteed Monthly Income For (Early) Retirement

Annuities can be insurance products like life insurance that is tied to a specific time frame. You have a return that is guaranteed by a contract from the insurance company. But in times of high inflation, your investments can actually shrink, like during the Great Inflation (1965 – 1982).

However, annuities provide a fixed, guaranteed monthly income. That’s why they are ideal for more conservative or less volatile (early) retirement planning. They are best for those seeking a highly stable, worry-free income in (early) retirement.

If you consider annuities, compare annuity providers for low fees, and ensure you choose one type of annuity that provides inflation-adjusted payouts.

You should consider investing in annuities if you want to get a fixed, guaranteed passive income each month, and don’t need immediate access to your money.

Bonds & Bills – Predictable Fixed-Income From Debt Securities

Bonds and bills are debt securities. You borrow money for a certain period (maturity), for example, to the government of a country (treasury bond/bill) or a company (corporate bond/bill), which guarantees a return, like 3-4 % for a 20-year treasury bond.

The key difference between bonds and bills is the timeframe for maturity. Bills have short-term maturities, like 3 months or 1 year. Bonds have long-term maturities of 10, 20, or 30 years. The shorter the maturity, the lower the guaranteed return.

Bonds and bills are low-risk investments if you’re buying those rated at least A. Rating agencies like Standard & Poor’s Global Ratings from the US check the creditworthiness of the borrower. AAA is the highest possible rating, followed by AA and A. Everything below BBB is speculative.

If you like the idea of investing in bonds, you can build a so-called bond ladder. This means you purchase bonds with staggered maturities. In other words, once the payout of one bond ends, another payout from a different bond begins. Also, consider inflation-protected securities like TIPS (Treasury Inflation-Protected Securities) to maintain purchasing power.

You should consider investing in bonds or bills if you want to get a fixed, predictable passive income and don’t need immediate access to your money.

Peer-to-Peer Lending – Alternative Fixed-Income 1

Peer-to-peer lending (P2P) works similarly to bonds. You invest in loan shares, or, in other words, you lend money in the form of personal loans in exchange for monthly repayments. That’s how P2Ps allow you to earn interest from borrowers, providing higher returns (like up to around 7 %) than traditional bonds (with only around 3-4 % at the higher end).

But, your risk level is a bit higher, as loan defaults can occur. You can prevent this by diversifying across multiple borrowers, and sticking to short-term loans with high credit ratings for lower risk. If you want to further explore P2Ps, use platforms like Mintos, Bondora, or Prosper.

You should consider investing in P2Ps if you want to get a fixed passive income with a higher return, and don’t mind the higher risk compared to investing in bonds or annuities.

Private Debt – Alternative Fixed-Income 2

Private debt is very similar to P2Ps, but with one major difference. You are lending or borrowing money directly to another person or a small institution. Private debt is typically owed by private households, small businesses, or nonprofits. That excludes borrowing by the government or financial firms, such as banks. In contrast, public debt is the debt owed by national, state, and local governments.

Private debt can take many forms, but it is commonly credit card debt, business loans, or personal loans. For example, an entrepreneur who borrows money from a family member would be an example of private debt. Depending on the form, private debt can be riskier and may or may not provide higher interest compared to public debt. The best thing is that it typically delivers a reliable income and reduced capital volatility, which can be great for your portfolio when other markets are volatile.

You should consider investing in private debt if you want to get a fixed passive income with a higher return, eventually, and don’t mind the higher risk compared to investing in P2Ps.

Dividend Stocks, ETFs, Index Funds – The Classic Passive Income

Dividend stocks, ETFs, and Index Funds provide the highest potential return among all investment options presented. If you want to know the difference between Stocks, Index Funds, ETFs, and Mutual Funds, you can read the blog post about The 7 Best SAFE Index Funds For Financial Independence.

However, earning dividends means you get paid a certain amount of money for holding a stock or ETF, typically once a year. Keep in mind that the higher the potential return, the higher the risk for your invested money to be volatile. That means your investments and capital go up and down. So, this type of investment is a medium to high-risk way of investing for passive income.

But actually, that doesn’t have to concern you, as you typically still get dividend payouts if you take care of the following. Look out for a diversified collection (across different sectors and countries) of dividend stocks, ETFs, and Index Funds with a long history of consistent dividend payouts. Examples include Coca-Cola and the S&P 500 dividend aristocrats. Over decades, they have always paid dividends to their investors, but the amounts fluctuated.

Investing in ETFs and Index Funds (and some stocks) is our favorite strategy for investing in passive income. For now, we reinvest our dividends and earnings. We plan to grow our portfolio up to €300.000 during the next couple of years, generating a 4 % dividend yield to earn €1.000 in monthly passive income. Actually, we consider applying the 4 % rule and simply sell our investments instead of collecting dividends, but the end result is the same.

You should consider investing in dividend stocks or ETFs if you want to get the highest possible return and a (more or less stable) passive income, but don’t mind the higher risk of volatility in your invested capital.

REITs – Passive Income From Fractional Real Estate

Real Estate Investment Trusts (REITs) are a form of crowdfunded real estate. They pool together capital from their investors, which is then used to invest in the underlying properties. Most REITs invest in a specific real estate sector, such as medical facilities, hotels, residential rentals, or commercial properties. The investors then share the profit.

All REITs have one thing in common: they earn income either from rent, property sales, or by investing in mortgages. That‘s why REITs can be very sensitive to interest rate changes. The best thing about REITs? They offer high yields, as REITs are required to distribute at least 90 % of their taxable income to shareholders. But, and this is very important, the passive income you get is treated as regular earned taxable income. So, typically, you have to pay more taxes on your profits.

REITs are perfect for hands-off, passive investing in real estate. You own a fraction of a real estate property, generating an income for you without the hassle of property management. Also, you don’t have to invest a large amount of capital upfront or take out a mortgage.

If you like real estate and dividend investing, I highly recommend engaging with REITs and real estate crowdfunding platforms. Examples include Crowdestate for expert real estate investors from Europe, or Fundrise for beginner real estate investors worldwide. Also, you can buy REITs directly through your broker, as most are listed on the stock exchanges.

You should consider investing in REITs if you like high-yield real estate investing but don’t want to deal with property management or invest a large amount of capital upfront.

Rentals – Less Passive Income From Property

Next, we look at investments that may require varying levels of time commitment to earn a monthly income, such as rentals.

If you own any form of property, you could rent it out to generate a steady rental income. Rentals refer to the temporary use of any property, vehicle, or other asset in exchange for a rental payment. Real estate is the most popular form. You’re buying a property, for example, and renting it out. Other examples include renting out your car, parking space, special equipment, vacation property, or land itself.

Rentals come with full ownership and full responsibility too. You are the owner and responsible for solving whatever issues arise with what you own and rent. That’s why rentals are typically not completely passive income sources, but they usually provide a consistent monthly income.

You should consider investing in rentals if you want to have more control over your investments and returns, and like the idea of being a landlord, even if you are more actively involved.

Capital Gains Allowance – Less Passive Income From The State 1

Capital gains allowance means you can sell assets like stocks, ETFs, or Index Funds tax-free up to a certain amount. That means the profits (aka capital gains) you make when selling are tax-free. This allowance resets every tax year.

That allows investors to earn a certain amount in profit before being subject to capital gains taxes. But, that amount may not be very high. It varies by country, as different limits apply in the US, UK, and other regions. For our family, it’s just around €160-170 per month in Germany. Also, holding periods of stocks, ETFs, or Index Funds may impact tax rates. Holding assets longer can minimize taxes.

To get a capital gains allowance, you need to apply for that through the government of the country you live in. That requires quite a bit of a time investment when doing it for the first time. But then it gets easier and will require less time the more often you do it. Also, you only have to do it once a year. For example, while doing a tax refund, which is our next favorite way of investing for a monthly income.

You should consider investing your time in applying for a capital gains allowance if you’re a stock market investor and file a tax return every year anyway.

Tax Refund – Less Passive Income From The State 2

A tax refund is money returned to you by the government when you’ve paid more taxes than you should have. It happens when too much tax is withheld from your paycheck or when you qualify for new tax deductions that have come up recently. Typically, you get the refund from tax offices after filing your return. Nowadays, you can almost automate that with online services that are especially designed to help you submit your tax refund application. I use the German App wiso.steuer.

Applying for a tax refund is my favorite way of investing my time to get a passive income. In my opinion, it is totally underrated. I only invest a couple of days per year to earn thousands of Euros.

You should consider investing your time in applying for a tax refund if you prefer risk-free investing for passive income and don’t mind that it requires a bit of your time once a year.

State Benefits – Passive Income From The State 3

Another underrated way of investing your time to earn a passive income is applying for state benefits. State benefits are provided by the government. They offer financial support for living costs, based on income, employment status, or personal circumstances.

Typically, the more money you earn, the fewer benefits you get. But, don’t fall into the trap of thinking you’re not eligible for state benefits just because you earn good money. Regulations change. If you don’t check what’s available to you at least once a year, you could miss out on free money from the state, so to speak.

We apply for state benefits, but only for our kids. For example, we get childcare subsidies (like most families in Germany). But families can get even more state benefits than just those for their kids. However, to get state benefits, you need to submit an application. For some, you only need to do it once in a lifetime, which is again a great return on investment.

You should consider investing your time in applying for state benefits if you prefer risk-free investing for passive income while earning a high return.

Affiliate / Advertising Revenue – Less Passive Income

With affiliate and advertising revenue, you can earn an income, typically from an online business, by promoting products or displaying ads on a blog, for example. With affiliates, you earn commissions by promoting products or services through affiliate links. Advertising revenue means you earn money by displaying ads on a website or YouTube channel, among others.

Both affiliate marketing and advertising revenue offer scalable passive income opportunities to online business owners. But, we can tell from our own experience, that it takes a lot of time and effort. It is the least passive investment strategy presented here – at least in the beginning, which can last for years. Then, after some time, it becomes a very passive income source.

You should consider investing in generating affiliate and advertising revenue if you want to have control over your investment and don’t mind doing the work for months or years before it pays off.

Cash Gifts – Passive Income From Family & Friends

A cash gift is money given to you from someone else or a company without expecting something in return (like a repayment). In most cases, cash gifts come from family, friends, or employers for birthdays, Christmas, or other special events like weddings or having a baby. We get cash gifts mostly from our family for our kids’ birthdays, our birthdays, Christmas, Easter, or when our girls have a special sports event or school achievement, among others. Cash gifts are generally tax-free for the recipient, but gift tax laws may apply to the giver, depending on the amount and country.

You should consider investing your time in talking to family and friends about receiving cash gifts instead of physical gifts if you like risk-free investing for passive income and are less consumer-oriented.

Comparing The 15 Strategies For Investing For Passive Income

Investing For Passive Income: How To Choose What’s Best For You

When you decide which strategy is best for you when investing for passive income, there are five most important things to consider:

1. Balancing risk and return: How volatile could your investments be?
2. How predictable should your passive income be?
3. Diversification
4. How passive should your passive investments be?
5. Do you want to invest through a financial advisor or a robo-advisor?

First is balancing risk and return. Typically, the higher the potential return, the higher the risk for your money. That doesn’t mean your money is lost, at least not if you’re staying away from risky investments, but rather that your invested money can be volatile, so that your capital goes up and down. Are you okay with higher volatility, which comes with a higher potential return? Are you a more risk-tolerant or a more risk-averse investor?

If so, you need a plan B for times when your investments are down. Because they will be. The stock market will go down. But, it will always go up again. Your plan B can look like having enough cash reserves for a year to live on (if there is a major crash that lasts several years).

That brings us to the next thing to consider when investing for passive income: How predictable should your passive income be? f you are not comfortable with volatility, predictable fixed-income securities (as presented above) may be a better solution.

Next is diversification. I bet you’ve heard the saying, “Do not put all of your eggs in one basket.” That refers to not only investing in one type of investment, but rather to spreading your investments. For example, you could consider investing your money in a rental, the stock market, and some sort of annuity.

Next is how passive you want your investments to be. Consider how much time you want to invest in income-generating investments. Because some are less passive than others, as mentioned before. Not all investors want to spend their time managing their investments or researching what they could invest their money in. For example, Index Funds are the perfect type of investment for a set-it-and-forget-it strategy. You set up your portfolio and forget about it, so to say.

Last is whether you want to invest through a financial advisor or a robo-advisor. A financial advisor is a professional stock picker. A robo-advisor is an algorithm-driven service with almost no human intervention. We don’t use either, and we talk about that in detail in the blog post How Should I Invest To Achieve Financial Freedom?.

The most important thing for you to know when considering a financial advisor or a robo-advisor is this: Data shows that most financial advisors cannot outperform the market over the long run. So, if you are simply buying the market (through a broad-diversified ETF), your return will not only be higher, but you will also accumulate more capital. That’s because financial advisors charge high(er) fees for their services, which will eat up a large part of your profits over time.

Now I’d love to hear from you: Which of these passive income strategies have you tried, or which ones are you considering? Let me know in the comments below.

If you walk away today with at least one new idea to grow your passive income, I’d love to share even more strategies with you in the next post. If you haven’t already, consider joining our community so you never miss a new release. You can subscribe to our newsletter below in the green footer.

Title image source: micheile henderson on Unsplash