Business & Investment

Three steps I take today to earn passive income and never work again

Creating a passive income large enough to give up a job can be a great ambition for many.

Today, you can earn valuable income with generous capital gains by buying a variety of high quality dividend stocks.

Holding some cash means lower earnings in the short term, but it can act as a buffer to protect investors from market downturns such as the 2020 stock market crash.

Purchasing dividend shares for passive income

Dividend stocks provide the most attractive passive income of any mainstream asset at the moment. Low interest rates and high real estate prices mean that savings, bonds and real estate returns are relatively low. As such, dividend stocks may be a natural choice for investors who have the capital to invest today and need income now.

It also has the potential to bring strong capital growth in the long run. This is attractive to investors looking to build a portfolio for long-term income. High yields on many income shares suggest that they are currently offering value for money, which can lead to capital growth. On the other hand, their attractiveness to other assets can lead to increased demand that boosts their valuations in the long run. This can lead to a larger retirement portfolio and is more likely to generate passive income for older people.

Variance between dividend stocks

Diversification among a wide range of dividend stocks is an important consideration, whether investors are seeking current or future passive income. At this point, the outlook for the economy is very uncertain. Factors such as political change and the future course of the coronavirus pandemic can hurt some companies, industries, and regions even more.

Therefore, it makes sense to have a wide range of stocks in your portfolio from different industries and locations. This reduces investors’ reliance on a small number of stocks for capital returns and income. The end result can be stronger, more resilient and passive income in the long run.

Hold cash to mitigate risk

As mentioned, cash savings provide disappointing passive income due to low interest rates. However, holding some cash can be a healthy move.

For investors seeking income today, cash can act as a buffer if the economic outlook deteriorates. This was true in the first half of 2020, when many companies postponed or canceled dividends in response to the coronavirus pandemic.

Similarly, holding cash allows investors building portfolios to take advantage of the sharp drop in stock prices. This may allow us to take advantage of the market cycle in building larger portfolios with more generous passive income in the long run.

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Three steps I take today to earn passive income and never work again Three steps I take today to earn passive income and never work again

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