Yes, your money can grow while you watch. There are several secure and consistent passive income streams that anyone can have, which can become true building blocks to create and preserve wealth. These income streams don’t just give you cashflow: they can be an effective investment as their value can appreciates.
Anytime you purchase stock from a listed company, you are buying into is a very tiny piece of ownership into that particular company. Owning stock in a company entitles you – a shareholder – to a portion of the company’s profits – and many companies that are profitable will pay their shareholders a small piece of what they make in the form of dividends.
For example, if an investor purchases 100 Sasol Limited (Sasol) shares on the Johannesburg Stock Exchange and Sasol, at the end of their financial year make a profit from operations and declare R10 per share will be paid in dividends, the investor will receive R1 000 in cashflow, simply because he owns 100 shares.
2. Investing in a REIT
This stands for Real Estate Investment Trust. Basically, you are buying “stock” in a company that just owns real estate and, in exchange for providing them with your investment, they will pay the shareholder a portion of their rental income as a dividend. These real estate companies can specialise in just about anything, from shopping centres, residential apartment buildings to industrial and office buildings. That way, you can actually say that you own shopping centres without, technically, owning one! REIT works the same way as dividends, with the only difference being that these companies only invest in real estate and nothing else.
3. Rental Income
Rental income is probably one of the most difficult sources of passive income one can obtain. You do need to have the capital to purchase the property or, if not, you will need to apply for financing with one of the major banks. You will therefore need to have a good credit score, a steady source of income (e.g a salary) and, depending on how much risk the bank is willing to take on the property, you – the investor – might need to put down a deposit of up to 20%. If you can check all three off the list, buying a rental property can be a fantastic way to generate passive income.
You can also take this strategy to a smaller degree by just renting out an unused bedroom in your house and, if you don’t mind having a roommate, use that to your advantage.
4. The 4% Rule with Index Funds
An index fund is basically just a big basket of shares that you can buy into for one low price, instantaneously. This gives you the best diversification, as it gives you access to nearly everything in the stock market and is incredibly easy to do. Just buy in something like a JSE Top 40 index fund. This specific fund will hold shares in all the top 40 JSE listed companies. There are many index funds one can invest in, you will just have to do your research and put your money in the best performing index that aligns with your financial goals.
There is a concept of what’s known as the 4% rule, which suggests that you can spend 4% of your portfolio for the rest of your life without running out of money. For illustrative purposes say you have R10 million invested in the Sygnia JSE Top 40 Index fund and, on average, the fund returns 8.38% per year. That’s R838 000 per year in profit, and you only spent 4% per year of gross capital! That is R400 000 per year in passive income for the rest of your life, without doing any more work on your end.
I don’t know about you, but I think this is a great passive income stream.
These are your best options if you want to make your money grow. If, like me, you would like to add to your very predicable, and many times insufficient, salary, choose wisely and start investing. It can be the best decision you will ever make.
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