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Top 3 Passive Investments for Hands-Off Investors

Choosing the right investments is an important part of building wealth. If you don’t have the time to take an active role in managing your portfolio (or you’re just feeling lazy), you can still find investments that have a good chance at providing you with steady returns. The following types of investments are designed to generate passive income and require minimal effort on your part.

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1. Bonds

To the savvy investor, the idea of tying money up in bonds may seem boring. After all, bonds are some of the safest investment vehicles around and lower risk often translates to lower returns.

When you invest in bonds, you’re essentially investing in loans that are made to companies or government entities. In return for your investment, you receive a fixed interest payment and once the loan matures, you typically get the principal and the interest back. You can then reinvest your earnings in more bonds.

Bonds can be good to include in your portfolio when you have a passive investing strategy because your earnings are more or less guaranteed. Since bonds aren’t volatile, you won’t have to worry about market crashes.

2. Real Estate

Top 3 Passive Investments for Hands-Off Investors

Investing in real estate can be a good idea for several reasons. First, it allows you to diversify your portfolio. By investing in different asset classes, you can spread out your risk. Second, real estate prices tend to be less susceptible to market fluctuations. What’s more, you can hedge against inflation by investing in real estate.

Owning a property yourself isn’t exactly a passive exercise. But you can own real estate without having to do a lot of heavy lifting. The two easiest ways to do it are investing in a real estate investment trust (REIT) or investing through a real estate crowdfunding platform.

A REIT is a company that owns property that produces income. When you invest in a REIT, you may be investing in several different properties at one time. Your returns are paid out as dividends stemming from the income that the property generates. You get some of the financial perks of being a landlord without the headaches that go along with managing tenants.

Real estate crowdfunding works in a similar manner. You can invest in equity shares in a property or invest in a mortgage note tied to a particular piece of real estate. Investing in equity tends to yield better returns but debt investments are less risky. Either way, you can earn solid returns without having to lift a finger.

3. Equity Crowdfunding

Top 3 Passive Investments for Hands-Off Investors

Equity crowdfunding is similar to real estate crowdfunding. But instead of putting your money into properties, you’re using it to back startups. Once the domain of accredited investors, equity crowdfunding is now open to investors with lower income levels.

When you invest in equity crowdfunding, you’re really investing in startups that need to raise capital. In return, you get shares of the company. Once the company goes public, you can sell those shares (ideally for a profit). In the meantime, you don’t have to do anything other than wait for the company to take off.

Of course, equity investments are risky. If the company flops, your shares could end up being worthless. It might take years for a company to go public and you might have to wait a while before you can sell your shares. Those are important factors to consider before jumping on the equity bandwagon.

Final Word

Passive investments are certainly appealing, but some of them are riskier than others. Taking a look at all of the pros and cons before diving in can help you decide which ones work best for your long-term investment plans.

Photo credit: ©iStock.com/amenic181, ©iStock.com/GRAZVYDAS, ©iStock.com/vgajic

Rebecca Lake Rebecca Lake has been writing about the nuts and bolts of personal finance for nearly a decade. She is an expert in investing, retirement and home buying topics. Her work has been featured on The Huffington Post, Business Insider, CBS News, U.S. News & World Report and Investopedia. As a homeschooling mom of two, she's always looking for ways to make the most of every dollar.
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