Are you new to the world of passive income? I’m sure you have heard all the talk about how cool it is to have passive income flowing while you sleep. You probably haven’t heard how difficult it is to start building streams of passive income, right?
When I say difficult, I don’t mean complex. I mean to say that you need to understand the art of passive income before building steady streams of revenue. Nothing in this world comes for free, let alone money. So you need to become wise before you can expect to see those pennies flowing into your accounts.
Luckily, I have already written an article and book about the topic called “What is Passive Income (pdf).” So, you can take the time to download that book for free and get some background information on becoming rich.
Retirement Planning in Your 40s
Let’s get to work. That leaves the rest of this article to focus on actually getting started with passive income streams for beginners. As a beginner, I assume you haven’t read many books on the topic of passive income. So, I will refer to some books that I have read and that I have written.
Then we can start getting some of that sweet money flowing into our accounts. As a beginner, you don’t want to over-expose your investments with risk. We will focus on creating safe income streams. Once you feel more comfortable in the following chapters, you can take more risks for greater rewards. Let’s begin.
Investing basics. The best way to get started with passive income is by investing in dividends. Building a dividend portfolio is a great way to learn how passive income works. You see, all passive income uses the power of compounding to create massive gains over time.
I highly recommend you read the book “The Compound Effect” before you start your journey. Not only does your money compound, but so does your knowledge and intelligence. The more you read and learn, the more your life grows in abundance.
Anyways, back to dividend investing. Before you drop a penny into a dividend account, read the book “The Intelligent Investor” by Benjamin Graham. It is the best investing book of all time, and it will teach you how to be patient in the stock market.
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Now, there are many ways to invest in the stock market. Most people invest for capital gains, and most people are not successful at that game. You want to do the opposite; you want to invest for income.
Beginners should start with dividend growth investing portfolio. A DGI portfolio consists of blue-chip dividend-paying stocks like McDonald’s, Starbucks, Procter & Gamble, Wal-mart, and Target. Investing in these stocks over time unlocks the power of income and growth. It is tough to lose money when you consistently dollar-cost-average into these proven blue-chip stocks over time.
You will want to choose the platform that is right for you. I highly recommend STASH as the DGI platform of choice. You can invest as little as $1/week into each of the DGI stocks of your choosing. Every week I invest $2/week into each of 20 DGI stocks, including the ones listed above. My STASH account now sits at $17,000 in just shy of two years. The monthly income from my STASH dividend growth portfolio is roughly $40/month.
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Real Estate. It may be hard to obtain the income to buy a rental property or personal residence as a beginner. Hopefully, you are saving up for these in the background. The best way to get started in the real estate game early on is through Fundrise.
Fundrise is a real estate investment trust that does not trade on the stock market. The REITs that trade on the stock market all have their quirks, and those are for intermediate investors.
Setting up Fundrise is like starting a bank account—it’s effortless. I have $7,300 in my Fundrise account, and they just paid me a quarterly dividend of $71. Not too shabby for taking a little risk. The money in your Fundrise account isn’t as liquid as on the stock market, so it may take 2-4 months to get your money back from the company. Don’t put in anything that you will need in the next 2-3 years (yes, years).
Cryptocurrencies. As a young investor, it is easy to get caught up in the hype of cryptocurrencies. However, do not fall for these shenanigans. The first thing you want to do is get the book “How to DeFi -Beginners.” This book will teach you all the buzzwords you need to understand before you go deeper into the world of crypto.
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Now, you only want to invest in centralized exchanges, including Coinbase and Voyager. I use Voyager (affiliate link) as it has been very good to me. Next, you have to pick your coins, and Voyager makes it easy.
Just pick the coins that Voyager pays interest on monthly. You can’t go wrong with Bitcoin, Ethereum, Voyager Token (VGX), and USDC. Don’t overthink it and start hunting for unproven coins. Invest for the interest and enjoy the capital gains as they come.
Retirement Planning. Finally, you want to start your Roth IRA and start investing in index funds. Yes, index funds, such as my favorite Vanguard Total Stock Market (VTI), are very boring. However, once you turn 60, you will have an extensive portfolio of tax-free money you can convert to whatever you want.
How to Start Dividend Investing 104: Choosing Your Stocks
So, in the meantime, you can invest a set amount into your Roth IRA. You can set up a Roth IRA on STASH and put it to invest weekly or monthly. Yes, you will lock your money away for years, but in the end, you’ll be a tax-free millionaire.
Putting it all together. Okay, so how does your passive income pile look so far. Well, if you were starting with $5,000, this is how I would arrange everything.
- $2,000 to DGI portfolio with these stocks ($400 each to McDonald’s, Altira, Verizon, AGNC, and Prudential).
- $1,000 to Fundrise into the income portfolio that focuses on dividend income.
- $1,000 to Cryptocurrencies into these coins ($250 each to USDC, Polkadot, Bitcoin, VGX)
- $1,000 to Roth IRA with all money going in VTI
It is a great starting point, but you won’t see much passive income in the beginning. To earn interest on your crypto, you’ll need to reach a certain monthly held amount on each coin. So, create a plan to achieve that with each currency.
Continue your plan. Now, since you have started, you have to continue to dollar-cost-average into each of your positions. If you can allocate $500/month total across all of your accounts, that would lead to excellent results.
Happy Cash Flow Retirement 2
The overall goal should be to create more income that you can invest into more assets. But I’ll save that for another day. This income is as passive as income can get; however, you won’t get the highest returns.
To receive the highest returns, you’ll need to become an insider on the income stream. That means owning real estate or a business where you control the outcome of the income. That is just something more profound for you to store in your brain for later.
Conclusion. Passive income does require a lot of work upfront to learn its intricacies. You can’t just start an investing account and pray everything works out for you. You need to understand the companies and the investing cycle before you make a purchase. It’s the same with cryptocurrencies and Fundrise.
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Hopefully, this article gets your mind thinking about the various ways to build passive income. There are almost limitless ways to earn income; you’ll just need to learn how to envision them. Be on the lookout for part two in the series.
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