There are so many ways to earn passive income, but here are only 10 passive income ideas for the average Kenyan. Keep in mind that passive income isn’t literally money without effort, but more akin to money with less effort.
What is passive income?
Passive income is income earned from an investment asset in which a person is not actively involved or actively employed to generate income. Passive income investment opportunities typically generate cash flow that requires little or no daily effort to maintain. This is not to say that passive income is easy money. It can be quite difficult for the average Kenyan to set up a passive income investment opportunity for themselves as it requires an upfront investment of either money, time, or both; the income as a result of it comes later. However, once you’ve made the initial investment, passive income pays off for years.
Examples include certain financial assets such as bonds or dividends, rental property, limited partnerships, or enterprise investments.
1. Dividend stocks and dividend index funds
Investing in dividend stocks is one of the simplest ways to build an income stream. Holding dividend stocks allows investors to receive earnings that a company distributes on a regular basis, such as quarterly, half-yearly, or yearly. A great dividend stock would be one that increases its payout over time, helping you grow your future income.
One advantage of investing in dividend stocks is that they are typically less volatile than growth stocks. Therefore, they can help diversify and even stabilize your investment portfolio. Additionally, investors can also reinvest the dividends back into the stock and potentially increase their investment if the stock does well.
For an even more hands-off approach, you can invest in dividend index funds. A dividend index fund that holds dividend stocks rather than you actively picking and choosing individual stocks to buy to make up your portfolio. Dividend index funds hold a great selection of well-rounded stocks that pay dividends, offering diversification benefits that can help balance portfolio risk, as market swings tend to be less volatile.
2. Exchange-traded funds (ETFs)
An exchange-traded fund is an investment fund that trades on an exchange, just like a stock. An ETF raises money from shareholders to buy and manage a portfolio of assets, in which each shareholder owns a piece of that portfolio in terms of shares. The shares are repriced at each transaction, based on demand and supply throughout the business day. When a shareholder decides to sell, they transfer their ownership stake in the portfolio of assets to someone else and receive cash in return. Typically, they are priced at their net asset value, but not always. They are good passive income producers as they collect diversified dividend streams.
Therefore, for a passive investor, investing in a dividend ETF can provide regular cash along with the added bonus of capital appreciation from the collection of assets held.
3. Bonds and bond index funds
Instead of buying a stake in a company through stocks, bonds are also another way investors can earn passive income by lending money to companies and the government to earn interest. Bonds are deemed safer investments than stocks, but they also generally offer a lower return on investment.
4. Money market funds
Money market funds are very similar to high-yield savings accounts and offer interest rates upwards of 7%. A money market fund is a mutual fund that invests in lower-risk securities like Treasury bills, bonds, and corporate bonds that pay a steady income.
5. High-yield savings accounts
High-yield savings accounts earn passive income with interest paid on savings. Though they offer lower returns than stocks or bonds, high-yield savings accounts are ideal for growing your emergency fund. High-yield accounts are insured savings accounts that earn a high interest rate and are worth looking into.
6. Peer-to-peer lending
Peer-to-peer lending or lending clubs are a great alternative to earning passive-interest income. Though riskier than putting cash in a high-yield savings account or money market fund, lending clubs could potentially earn you more—as much as 12%.
7. Rental Property
Real estate investment has always offered the best long-term bet to build a healthy passive rental income. Long-term or short-term rentals (like Airbnb) can provide a reliable source of cash from a steady source of renters. So, if you want to build a passive income from real estate, buy/sublease and manage your own property.
However, if you do not have the hefty down payment to purchase your own property, consider a Real Estate Investment Trust (REIT).
8. Real estate investment trusts (REITs)
Real Estate Investment Trusts (REITs) are companies that own commercial real estate such as office buildings, retail spaces, apartments, and hostels. REITs tend to pay high dividends, but they vary in complexity and availability. Some REITs are publicly traded on stock exchanges, offering dividends like dividend stocks. For new investors, it is best to stick to publicly traded REITs, which you can purchase through brokers.
Related: How to Create Wealth by Investing in Real Estate
9. Content
Content creation is another great way to generate passive income and cash flow at home. Creating content can be a lot of work that requires upfront effort, especially to create engaging content that appeals to a large enough audience to generate a good, sizeable income. However, once you’ve created something people like and are engaged in, it is possible to generate revenue by displaying advertising or running sponsored content. You may, however, find that the content you create doesn’t always stay green; therefore, over time, there will always be pressure to create more content or update what you have to keep it viable for longer.
10. Private Equity
For high-net-worth individuals, private equity is done through investing in private equity funds, which are typically only available to accredited investors who meet a certain net worth or income requirement. For the average person, private equity takes the form of backing family, friends, or other trusted partners to help fund their business with an agreement to earn returns from any future profits. Private equity in any shape or form, with large or small investments, is an inherently risky long-term bet. Therefore, a great rule of thumb here is to never invest more than you can afford to lose.
The Bottomline
Passive income is compensation for work already done. It requires a high upfront effort and/or investment to be made. It also has the potential to earn infinitely, provided the underlying asset(s) continue to exist. Passive income is a great way to boost your personal finances. And, as an investor, it is something you should seriously consider, even with the little you may have.
This list of passive income ideas is in no way exhaustive, and we would love to hear other ways you have been earning passive income in the comment section below.
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