If you want to earn a passive income, there are several types of investments that can help, such as ETFs, dividend shares and property.
By focusing on passive investment options, it’s possible to build long-term income streams with relatively low effort.
Passive investing is an approach to investing that focuses on buying and holding investments for the long term, rather than constantly buying and selling to beat the market.
For example, instead of actively following the stock market and picking which shares to buy, a passive investor might purchase an S&P/ASX 200 exchange-traded fund (ETF).
This approach is attractive because it requires less time commitment, lower fees and greater diversification compared to active investing. Plus, studies have shown that the passive investment approach often yields better results than active investor strategies.
| Response | |
|---|---|
| I'm not invested | 40.87% |
| My portfolio is showing a profit | 35.02% |
| I don't know | 13.8% |
| My portfolio is showing a loss | 10.31% |
When you buy shares in a company, you own a portion of that company and are entitled to a share of its profits. When the company’s share price increases, the value of your “parcel” of shares also rises in value.
But there’s also another easy way to make money from shares: dividends. Some companies pay “dividends”, which are a portion of the company’s profits, to each shareholder at specific times throughout the year. Not all companies pay dividends, but investing in those that do is a great way to generate a passive income. It's also possible to receive franking credits along with your dividends, so long as you're beneath a certain income bracket. You can read more about how franking credits work in our guide.
And you don’t only have to invest in shares in Australian companies either. If you open an account with one of the many online share trading platforms on offer, you can trade shares not only on the Australian Securities Exchange (ASX) but on major stock exchanges all around the world. So while you’re catching up on your beauty sleep, your investments could be earning you big bucks.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Exchange-traded funds or ETFs are a simple way to get exposure to multiple companies on the stock market without having to invest in them directly. ETFs are a form of index fund that track the performance of a particular commodity, industry or group of companies, and can be a low-cost way to help diversify your portfolio.
A popular example of an ETF in Australia is the iShares Core S&P/ASX 200 ETF, which tracks the 200 largest companies on the Australian stock market. Like regular stocks, ETFs can be bought and sold on most share trading platforms.
Have you ever looked at the interest rates banks charge on their personal loans and wished that you could earn the same rate on your savings? Well, it’s now possible for anyone to become a lender, thanks to the rise of peer-to-peer lending services.
The concept behind peer-to-peer lending is actually quite simple: if you have money to invest, a lending service will match you with a customer looking for a loan. The matching process takes place through an online platform such as a website, and it allows you to cut out traditional lending institutions such as banks.
You get to put your money towards a managed investment product, and the borrower pays the loan back over time with interest. Peer-to-peer investing is available for personal and business purposes, with companies such as RateSetter, Wisr and OurMoneyMarket offering this service.
Investments made through a P2P lending platform are not protected and are subject to risks including credit risk (defaults) and liquidity risk. These investments are not subject to review by the Australian Financial Complaints Authority. Actual returns may vary from the Expected Returns declared by the Providers. Read the PDS for details before investing and consider your own circumstances, or get advice, before investing.
If you’re lucky enough to own more than one property, renting out the spare property is an excellent way to generate an ongoing source of income. If you live in a capital city like Sydney or Melbourne, you could earn a substantial amount of rental income by renting out a house, apartment or granny flat. While there’s undoubtedly some work involved in acquiring an investment property, an experienced property manager can look after your investment while you sit back and wait for the money to flow in.
However, you don’t even have to own an investment property to make money from rent. Thanks to accommodation sharing services like Airbnb, you could rent out your own home while you’re away on holidays. You could even rent out a parking space or office space that you’re not using, which can provide a steady source of extra income with very minimal effort involved. If everything goes as planned, all you’ll have to do is place an ad.
Take a look at our investment home loans guide.
Robo advisors are apps that automatically invest your funds into a portfolio of stocks or ETFs depending on your risk profile.
Typically you can answer a questionnaire about how long you plan to invest for, how much you earn and how much risk you're able to take on. Then you might get offered a portfolio option based on your profile that you'll deposit funds into on a regular basis.
The great thing about robo-advisors and other similar investment apps (like micro-investment apps), is that you're investments are automatically invested for you, making them truly passive. You just decide how much you want to invest and how often and the app does the rest.
These are just a few of the ways you can make money while you’re sleeping, and there are plenty more you can think of if you put your mind to it, so consider putting one or more of them to work for you. When you make money while you sleep, it’s hard not to wake up happy.
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