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Best Ways to Earn Passive Income in 2023

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Best Ways to Earn Passive Income in 2023

The best ways to earn passive income aren’t only the purview of the wealthy. With a modicum of startup time and capital, anyone can create a passive income stream. Whether you have a full-time job or are a retiree seeking extra cash, passive income ideas are available to increase your cash flow. Passive income isn’t literally money without effort, but more akin to money with less effort. Some passive income strategies, like owning dividend-paying stocks or bonds require less work than owning rental real estate. This guide covers how to get started, how much passive income you can earn, the required effort, and various passive income investments. 

How to Start Earning Passive Income

There are scores of ways to start earning passive income. Before you begin, you’ll need to figure out how much effort and money you want to expend. Then choose a passive income idea that fits your capital, skills, and interests.

Step 1: Choose passive income streams. Spend time determining if you want to delve into investing for passive income or if you want to run a side gig that throws off some cash. Either way, it typically takes some time to build up a decent cash flow. 

Step 2: Choose the platform that fits your needs. If you’re seeking passive investment income, there are many financial brokerage firms, apps, and banks that will suffice. Selling online products or starting an affiliate website begins with creating a website or social media platform. The required effort is greater in the beginning and diminishes as time passes.

Step 3: Set your expectations. Earning passive income from investing involves predicting your return, based upon the investment amount. A $5,000 investment in a dividend fund that pays a 6% yield will provide $300 per year, while successful affiliate websites might earn $1,000 per month or more. 

Compare Top Investment Platforms

 Platform  Type  Account Minimum Fees
Merrill Edge Online Broker $0 $0.00 per stock trade. Options trades $0 per leg plus $0.65 per contract
TD Ameritrade  Online Broker $0 $0.00 for equities/ETFs.$0.65 per contract for options.Futures $2.25 per contract
E*TRADE Online Broker $0 No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume.
Betterment Robo-Advisor $0, %10 to start investing 0.25% (annual) for investing plan or $4/month fee for balances under 20K, 0.40% (annual) for the premium plan
Wealthfront Robo-Advisor $500 for investment accounts, $1 for cash accounts, $0 for financial planning 0.25% for most accounts, no trading commission or fees for withdrawals, minimums, or transfers. 0.42%–0.46% for 529 plans
Empower Robo-Advisor $100,00 0.49% to 0.89%

Best Passive Income Investments

The best passive income investments involve balancing your human capital, financial capital, time, and skills. 

Investing in financial markets spans banking and financial products like stocks and bonds. Buying banking products like certificates of deposit and high-yield cash accounts is less risky, with lower upside potential than investing in financial market assets. 

Passive investing in dividend-paying stocks or interest-paying bonds provides cash flow, but requires a larger investment to realize meaningful monthly income. Crowdfunding investment apps also enable the public to buy shares in farmland, large and small real estate projects, wine, art, and more to receive ongoing cash flow. 

There are a range of risk levels when investing in financial assets. The lowest-risk cash flow-producing assets are money market funds, high yield savings accounts and bank certificates of deposit. Investing in dividend-paying stocks or stock funds carries the risk that the dividend will be cut and also that the principal value of the investment might fall. Interest-paying bonds and bond funds will vary in price as well, but the interest payment is rarely cut. Individual bonds, held until maturity will return the par or full value of the investment. But bonds sold before maturity and bond funds might be sold for less than your original payment amount. 

Crowdfunding apps that invest in real estate, farmland, startups, art, wine, and more carry additional risks. Many require long lockup periods before you can withdraw your money. Others are not as closely regulated as traditional financial assets. With newer platforms, there is a greater chance of asset defaults and business closures. 

Dividend Stocks

Buying dividend-paying stocks is a path to owning a portion of a publicly traded company. Many stocks pay a portion of their earnings to shareholders in the form of cash dividend payments. Dividends are usually paid quarterly.  You have the option to reinvest the cash payment in additional shares of stock or you can take the cash dividend payment. Long term investors who build up a portfolio of dividend-paying stocks or funds have one of the best ways to earn passive income. 

Investing in dividend-paying stocks is a passive income idea with both cash flow and capital growth potential. 

Dividend Exchange Traded Funds

A dividend exchange traded fund (ETF) is an investment vehicle that owns many dividend-paying stocks. You can buy one investment, such as the SPDR S&P Global Dividend ETF (WDIV), and receive access to a portfolio of dividend-paying companies. The WDIV ETF owns global companies which frequently pay higher dividends than U.S. firms. Many of the dividend ETFs screen for companies with a history of increasing dividends as well. 

The dividend ETF is another passive income investment which provides regular cash payments along with an added bonus of capital appreciation potential. Consider management fees when choosing a dividend exchange traded fund, as higher fund fees can detract from returns. 

Best Online Brokers For ETFs

 Company  Account Minimum  Fees
 Fidelity $0  $0 for stock/ETF trades, $0 plus $0.65/contract for options trade.
Interactive Brokers  $0  $0.00 commissions for equities/ETFs available on IBKR’s TWS Light, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing. $0.65 per contract for options on TWS Light; that is also the base rate for TWS Pro users, with scaled rates based on volume. $0.85 per contract for futures.
Charles Schwab $0   $0 for stock/ETF trades, $0.65 per contract for options.

Bonds

Bonds are back in favor as interest rates inch upwards. Unlike stocks, bond investments are loans that you make to a company or government entity. In exchange for the loan, you receive regular coupon interest payments. Bonds are among the best ways to earn passive income because if you buy a new issue bond at par, usually  $1,000, and hold it until maturity, you’ll receive regular cash interest payments and a return of principal at the bond’s maturity. Bonds with lower credit ratings typically provide higher interest payments and greater cash flow, while government bonds and highly rated corporate bonds will offer lower interest payments. 

Bond values can rise and fall, so you might receive more or less than your initial price, should you sell before maturity. The bond’s credit rating suggests the bond’s likelihood of default, with lower-rated bonds carrying a higher risk of default. Investors can also invest in diversified bond mutual or exchange traded funds to build passive income without lifting a finger.

Sample bond types:

  • Government
  • Government agency, such as mortgage-backed bonds
  • Corporate
  • High yield (sometimes called junk bonds)
  • Tax-exempt

Certificates of Deposit

Certificates of deposit (CDs) are banking products that you can buy at most financial institutions. You invest a specific amount of money, typically $100 or more, and commit to leaving the money invested for a period of time. CDs typically pay a pre-specified interest rate and are usually issued for terms from three months up to five years or more. 

There are a variety of CD types, including fixed rate and floating variable interest rate. Investors seeking regular cash flow and a stable principal value can create a CD ladder and buy CDs at regular intervals. As one CD comes due, you reinvest the proceeds in a new certificate of deposit. This is a good strategy for increasing cash flow when you expect interest rates to increase. 

High Yield Savings Accounts

A bank high yield savings account pays higher interest payments than a typical savings account. The required minimum balance can be greater than that of a savings account.

If you’re wondering how to make passive income, a high yield savings account is a good choice.  For passive income from money that you need for near-term expenses and emergencies, a high yield savings account is a sound choice and keeps your funds liquid. 

The process to open a high yield savings account is similar to opening a traditional bank account. Simply click on the “open an account” button on your preferred bank’s website and answer several personal questions, such as:

  • Type of account (single or joint)
  • Address
  • Social Security number
  • Prior addresses to verify your identity
  • Current and possibly past employer
  • Debts

Money Market Accounts

A money market mutual fund is an investment vehicle that owns short term commercial debt. This investment is distinct from a money market bank account, which is similar to a high yield bank savings account. Like a typical mutual fund, money from many investors is pooled to invest in short term debt and cash-equivalent instruments. The allure of these accounts is that the share value is pegged at one dollar and yields are among the highest of the high yield cash equivalent group. 

You’ll need to invest in a money market fund within your investment brokerage account. These investments are liquid and the money can be withdrawn within a few days. The interest from money market funds can be withdrawn for cash flow, or reinvested to grow for the future. 

Compare Providers

Provider Best For Key Benefit
Prime Alliance Bank Best Overall Competitive interest rate for any balance
Patelco Credit Union Best for Small Balances Higher APY for smaller balances
Axos Bank Best for Debit Users Full debit card access with no monthly fees
Ally Bank Best for Ultimate Flexibility Access your funds online, through ATM, debit, or Zelle
Synchrony Bank Best IRA Options Rollover an existing IRA to an IRA money market account

Alternative Passive Income Ideas

You’ll find a laundry list of alternatives to stock, bond, and cash passive income ideas. Some of these choices are more passive than others. Real estate investing is frequently touted as a response to the question, “What is the best way to earn passive income?” But real estate investing takes many forms, some more passive than others. Owning and managing real property is passive, until a pipe breaks or the renter doesn’t pay their rent. Then it is a lot of work. With real property investing you’ll also need a chunk of capital to begin. Real estate crowdfunding apps or investing in real estate investment trusts (REITs) are more passive. Once you purchase the securities, you wait for the cash flow.

Another popular way to earn passive income online is by creating an affiliate website, but this involves more work than meets the eye. An Airbnb rental is only semi-passive if you hire a team to manage the property. Cash-back credit cards and shopping sites might be considered a passive income idea, yet you’re spending in order to receive the cash. That’s not a net-positive endeavor. 

Other alternatives to passive income involve digital property sales, like e-books, courses, apps and other online goods. For all of these passive income ideas, there is a hefty startup time commitment and some upfront cash as well. You’re also less certain of receiving a return on your investment if the sales miss expectations. Evaluate these alternatives to passive income to learn whether there’s a strategy for you. 

REIT Investing

A real estate investment trust or REIT is an investment vehicle that owns a pool of commercial real estate. There are REITs that provide broad diversification across the real estate landscape. Or you can buy niche REITs that own senior housing, student housing, warehouses, commercial property, mortgages, shopping malls, data centers or many other varieties of property. The benefit of REITs for cash flow is that they are required by law to pay out 90% of their taxable income to shareholders.

Peer-to-Peer Lending

Debt investing is popular, with many platforms that enable everyday investors to be the bank and lend money to others. Apps like Groundfloor provide investors the opportunity to lend to real estate buyers. Other platforms match up borrowers with lenders for a variety of cash needs. 

These peer-to-peer lending apps offer higher interest payments than other traditional stock, bond, or cash vehicles. But they are riskier as the loan payment defaults can eat into your returns. To minimize that risk, you can choose to invest in higher quality loans and diversify by owning many loans. 

Affiliate Marketing

Affiliate marketers sell products and services on their website or social media accounts and receive a commission from the brand for the sale. Affiliate marketers frequently write reviews to draw visitors to their website. The setup for affiliate marketing is not passive and involves creating a website or social media platform, developing contracts with companies who pay affiliates, and writing content to draw visitors to the website. 

The passive aspect of affiliate marketing is that once the content is written and a website develops a stream of visitors, your work is diminished. That’s only partially true, as you’ll need to write new content and update old content in order to maintain and increase website traffic. Additionally, it can take months or more to begin to generale cash flow. We place affiliate marketing on the higher-effort step of the passive income ideas ladder. 

Best Alternative Investing Platforms

Platform Focus Minimum Investment 
Fundrise Real Estate Investments $10
Masterworks Art Investments $10,000
Yieldstreet Asset Variety $2,500
iTrustCapital Gold and Cryptocurrency $1,000

Factors to Consider When Choosing Passive Income Streams

Capital 

All passive income ideas require startup capital. To develop a meaningful passive income stream from financial assets like cash-equivalents, stocks, and bonds, you’ll need a decent account balance. With $100,000, an investment paying a 5% dividend or interest payment provides $5,000 per year cash flow. 

Although affiliate marketing requires a small cash outlay to potentially obtain cash flow, you’ll pay more with your human capital or time. 

Risk 

All investments carry a degree of risk. Certificates of deposit and high yield cash investments don’t risk the principal value of your investment, but could lose purchasing power over time due to inflation. Investing in higher risk dividend paying financial assets involves the potential to lose principal and also decreased cash flow, should dividends be cut. Crowdfunding passive income investments are less regulated and can tie up your money for longer periods with added risks of defaults and platform failures. 

Taxes

With the exception of tax-exempt municipal bonds from your state of residence, all income is taxed by the government. After-tax income is what really matters, so understand how your investment is taxed, and your specific marginal tax bracket. Dividends and interest payments may have their own tax rates..

Key Differences Between Stocks and Alternative Investments

  Stocks Alternatives
Liquidity Extremely liquid; can trade throughout the day. Many have lock-up periods which tie up your money for periods from several months to several years
Fees Fee-free trading with most brokerages; most ETFs and mutual funds charge less than a 1.0% expense ratio  Fee structures range from simple to quite complex; a few platforms provide low-fee alternative investments, while others have complex fee structures including performance-based add-on fees 
Minimum investment  Fractional stock and ETF shares can be bought on multiple investment platforms for as little as $10  Platforms are available for both accredited and non-accredited investors; minimum investment amounts range from a low of $10  to four to five figures. 
Correlation  Stocks exhibit distinct correlations among specific sectors and geographic regions. Lower correlations between assets lead to more price stability within your investments. Alternatives will also have correlations within themselves and won’t always move in lockstep. The correlation between stocks and alternatives will depend upon the time period and specific alternative investment vehicle.

FAQs

What’s the Difference Between Active Income and Passive Income?

There is a fine line between active and passive income. Clearly, going to work every day in exchange for a regular paycheck is active income. Task work such as food delivery, rideshare driving, freelance jobs, consulting, and contract work are also ways to create active income. With active income, you get paid for working. Passive income ideas span a range of jobs. 

Receiving income in exchange for zero effort is unlikely, unless you count receiving an inheritance or winning the lottery. Writing a book and then receiving royalties is a great example of passive income, yet with the passage of time, book royalties will decline. In contrast, if you buy a dividend-paying stock fund, once you select the investment, you will receive ongoing dividend payments without much additional effort. Some passive income ideas are liquid, like buying dividend-paying investments, while others are less liquid, like long term real estate syndications. Some passive income jobs require minor ongoing work in exchange for cash flow, while others are less passive and involve greater ongoing effort. Passive income strategies range from those with a small startup effort, like investing in dividend-paying stock or money market mutual funds, to more labor-intensive ones, such as managing rental properties or creating an affiliate marketing review website.

How Can You Make Passive Income With Little to No Money?

By creating digital products like courses, apps, e-books, and more and selling them, you can create passive income with minimal cash. Books can be sold on Amazon, while you can sell other products through your social media accounts or an online store.

If you have a job with a 401(k) or other retirement account, you can contribute part of your paycheck to that account and invest in financial assets. At retirement you’ll have enough money to create a passive income stream.

Can You Live Off of Passive Income?

Yes, you can live off of passive income. It’s easiest to live off of passive income if you live in a low cost-of-living area. To live off of financial investment and cash-equivalent income, you’ll need a larger amount of money. To earn $30,000 per year, you’ll need $600,000 invested at 5% per year. 

To live off of digital product or service sales, you’ll need to earn several thousand dollars per month. The same goes for affiliate marketing. 

Older individuals who have built up a large amount of investable assets are most likely to be able to live off of passive income. The exceptions are those folks who’ve made a lot of money young in life, live simply, and invest for income and capital growth.

How Do You Pick the Right Passive Income Idea?

To pick the right passive income idea, assess your available time, risk tolerance level, and available capital. Also, explore your skill sets to determine which passive income ideas are a good fit for you. The easiest way to start investing for future passive income is to start small and automate your investing.

Who Should Consider Passive Income Streams?

Everyone should consider investing for the future. When you are older you’ll have the opportunity to create a passive income stream. Younger individuals with ambition and the ability to motivate themselves are wise to consider creating passive income streams. Employment is uncertain and creating multiple streams of income is a sound financial plan. 

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our
editorial policy.
  1. SEC.com “Investor Bulletin: REITs.” 




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Save on Business Travel for Life This Memorial Day with an $80 Deal

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Save on Business Travel for Life This Memorial Day with an $80 Deal

Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

Growing businesses around the world rely on traveling salespeople and representatives to fuel expansion. For those in the accounting department who are trying to make enough room for airline ticket budgeting, you can do them a lot of favors by hooking up yourself or a team member with this special deal.

Through 11:59 p.m. PT on May 31, you can get a lifetime subscription to this OneAir Elite Plan for only $79.97 (reg. $790). This deal gets you indefinite access to OneAir’s deals on business, first, premium, and economy class flights to and from destinations of your choosing and interest. These deals include mistake fares and advantageously priced ones that happen to pop up.

OneAir’s platform uses artificial intelligence (AI) to scan the web around the clock for deals so that they are ready for your team when someone needs to hit the road. In addition to getting to choose up to 10 departure airports with deals, Elite users can also take advantage of OneAir’s one-on-one business and first-class planning support.

Conveniently, the OneAir Mobile App lets you access these deals, book trips, and complete bookings all in one place. It is available for both iOS and Android devices.

One recent user, Ashok, who saved $1,080 on flights using OneAir, wrote, “I am so pleased with my decision to sign up with OneAir! Just booked a super cheap flight deal to Vancouver along with 5 nights of hotel stays.”

Remember that only through 11:59 p.m. PT on May 31, you can get a lifetime subscription to this OneAir Elite Plan for only $79.97 (reg. $790).

StackSocial prices subject to change.

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Did OpenAI steal Scarlett Johansson’s voice? 5 Critical Lessons for Entrepreneurs in The AI Era

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Did OpenAI steal Scarlett Johansson's voice? 5 Critical Lessons for Entrepreneurs in The AI Era

Opinions expressed by Entrepreneur contributors are their own.

Did OpenAI steal Scarlett Johansson’s voice? OpenAI has since paused the “Sky” voice feature, but Johansson argues that this is no coincidence. In response, Johansson delivers a masterclass for entrepreneurs on navigating the AI era successfully.

In today’s discussion, we delve into what this controversy means for business owners, highlighting five critical AI strategies they must deploy. We also explore essential methods to protect your intellectual property and leverage AI for a competitive edge—insights vital for keeping your venture ahead in the AI revolution to remain your competitive advantage.

Take the AI skills quiz here (available for a limited time) and equip yourself with practical knowledge by grabbing a copy of my new book, ‘The Wolf is at the Door – How to Survive and Thrive in an AI-Driven World.’

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Why Are New Business Applications at All-Time High?

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Why Are New Business Applications at All-Time High?

More people are starting businesses now than ever before — and the reason could be that the opportunity cost, or what they have to give up in exchange for entrepreneurship, is lower than ever.

Data that the U.S. Census Bureau released earlier this month shows that the total number of applications to start businesses hit a record 5.5 million last year.

That’s half a million more applications than what was filed in 2022.

Related: Here’s What Millions of Small Businesses Have in Common, According to a New Survey

Census Bureau data from the first four months of this year show that the startup boom is still going strong, too — from January through April, the number of new business applications totaled over 1.7 million.

Why are more people filing to start new businesses?

Columbia Business School professor Angela Lee told Entrepreneur that the reason could be the “unprecedented number of layoffs from big tech companies in the last several years, resulting in a large pool of talent freed up to pursue entrepreneurship.”

Columbia Business School professor Angela Lee (left) and Co-Founder of Plum Alley Investments Andrea Turner Moffitt (right). Photo by Monica Schipper/Getty Images)

Lee, the director of the Eugene Lang Entrepreneurship Center, also noted that “entrepreneurship has historically been counter-cyclical because the opportunity cost to start a company goes down during a recession.”

Related: Want to Start a Billion-Dollar Business? Look to These Two Industries, Which Have the Most Unicorn Growth

Big tech companies have been laying off employees in record numbers in recent years.

Tech layoffs last year affected 263,180 employees globally according to tracker Layoffs.fyi.

Amazon laid off the most people (27,410) last year, but Meta (21,000), Google (12,115) and Microsoft (11,158) also contributed to record numbers.

The unemployment rate has remained stable, in the 3.7% to 3.9% range in the U.S. over the past nine months, according to the latest U.S. Bureau of Labor Statistics jobs report.

Related: ‘The Employment Situation’ Report for April Shows Employers Are Taking Hiring Down a Notch, Employee Wage Growth Slowing

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