Passive income is a way to put your earnings on autopilot. Rather than having to devote time or effort to earning money, passive income comes in regularly and automatically. This frees you up to pursue other activities, whether actively generating additional income or simply enjoying your spare time.
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When it comes to passive income, there are plenty of options, but which one is best for you depends primarily on your age, investment objectives and risk tolerance, among other factors. But these are some of the easiest ways to generate $2,000 in passive income.
Property is one of the most common ways to generate passive income. One of the easiest ways to invest in real estate is through a real estate investment trust, or, REIT. A REIT is a professionally managed fund that takes investor money and buys real estate, passing the rental income to shareholders as dividend income. This is a great way to generate passive income because with one simple investment you can sit back and collect dividends and leave the hands-on work to professionals acting on your behalf. You can also liquidate your REIT at any time in the open market, rather than having to wait days or months to unload an individual property. As of Aug. 31, 2022, the average yield for all REITs was 2.91%, meaning an investment of about $68,728 could generate $2,000 per year in dividend income per year, on average.
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Rental real estate requires a bit more hands-on effort than simply owning a REIT, but it can provide higher returns as well. Depending on where the property is, you may be able to earn $2,000 or more in just a single month for a simple one-bedroom apartment, although in some places you’ll need to rent out an entire house to generate that type of income. Of course, your investment would have to be more than the $68,000 and change you’d need to get $2,000 per year out of a REIT. Another factor to consider is that when you own rental real estate, you’ll have to go through the effort to rent out your property to the right tenant, and you’ll be expected to perform basic maintenance. However, over time your property — if it is well-located — may also provide you with capital appreciation as well.
High-dividend stocks are typically shares of mature companies that produce regular, consistent income. While they may not have as much capital appreciation potential as some young startup companies, they are a reliable source of passive income. The average dividend yield of S&P 500 companies was about 2.24% as of Oct. 1, 2022, but many high-yielders generate much greater income than this. As of the same date, U.S. Bancorp, for example, was yielding 4.81%, while Kraft Heinz and Eastman Chemical had yields of 4.80% and 4.67%, respectively. With these types of yields, it will only take about $41,667 to generate $2,000 in passive income per year. One of the best things about owning high-dividend stocks is that these types of companies tend to raise their dividends from year to year as well, meaning your income stream may keep up with or even beat the cost of inflation.
Fixed annuities can be a good way to generate passive income as well, but the caveat here is that you really should be 59 ½ or older if you want to buy them. If you withdraw money from this type of fixed annuity before you reach that age, you’ll face a 10% early distribution penalty from the IRS, on top of any ordinary income tax that you may also have to pay. However, for retirees, these types of annuities offer two primary benefits. The first is a predictable, set stream of income that is guaranteed by the issuing insurance company. The second is the ability to collect these payments for a specified term or even for the rest of your life, no matter how long you may live. Common fixed annuity terms are two to 10 years, while deferred income annuities continue to pay for your entire life. As of Oct. 1, 2022, you could get a rate of about 4.75% on a 10-year fixed annuity. This means that an investment of $42,105 will get you $2,000 in passive income annually.
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This article originally appeared on GOBankingRates.com: Looking for an Easy $2,000 in Passive Income? Here’s Where To Invest
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