How Can I Earn Passive Income?
Tagged in: ,

"Certain strategies may require a greater financial outlay than others, as well as ongoing monitoring or working with a professional to guarantee income generation."

Tap to Read Full Story

Q: What should I consider before building a passive income stream?

Passive income is an attractive notion, to say the least—and it can be a valuable tool in building financial security. The word “passive” implies minimal time and effort in locking down and maintaining a steady income. What’s not to like?

But there are some important considerations before jumping in—and not all sources of passive income are created equal. For example, certain strategies may require a greater financial outlay than others, as well as ongoing monitoring or working with a professional to guarantee income generation.

[ad 1]

To start, it’s important to understand your risk tolerance. Basically, that’s how much volatility in the value of your investments you can withstand.

If you’re pretty risk averse, the right passive income strategy may be stashing your money in a high-yield savings account. This is a painless process that rewards you with a guaranteed growth rate. But in exchange for that security, you may only earn about 1 percent on your money (whereas investing in dividend-yield stocks or even bonds can generate much more in passive income).

On the other end of the spectrum, investing in real estate can create a sizable passive income. However, owning a rental property can require a level of effort that doesn’t work for everyone. Plus, not all real estate investments can generate returns, so it’s necessary to be able to accurately analyze potential opportunities. The people best suited to pursue this income source are those who are comfortable with the risks and have the time and skills to do their research—and, of course, the funds necessary to make the initial investment.

Got a money question? Submit it to our panel of advisors here.

Grow Financial Advisor Panel participants are responsible for the content expressed and do not necessarily represent the views or opinions of Acorns Grow, Inc., Acorns Securities, LLC or Acorns Advisers, LLC. Content is provided on an informational basis and should not be construed as investment advice. Individual circumstances will vary. Please consult a financial advisor before acting on any opinions expressed. Participation in the panel is voluntary. Editing of advisor responses is for brevity and clarity; no editorial privilege is exercised.

Get the Grow Newsletter Every Week
The best money advice you never got, delivered to your inbox weekly.
The best money advice you never got, delivered to your inbox weekly.