We’ve all dreamed about how great it would be to earn money while we sleep or while we’re lounging on a tropical island. With the right streams of passive income, you can make those dreams a reality. While it does take a bit of time and money to get started, investing in stocks is widely touted as one of the best methods of generating truly passive income. Once you’ve built a healthy portfolio, very little effort is required on your end.
For beginners, the idea of investing in stocks can seem overwhelming. It may even seem downright frightening due to the risks involved when playing the stock market.
The good news?
Investing in stocks isn’t as scary or daunting as it seems. Keep reading to learn more about passive income and how investing in stocks can help you build your wealth and achieve financial freedom.
What Exactly Is Passive Income?
If you want to learn more about passive income, you first need to understand exactly what it is. Simply put, it’s money that you earn with minimal ongoing effort. Passive income comes from things like rental properties, partnerships in corporations, and, of course, investments. It requires an upfront investment of time and/or money, but once you’re set up, you earn ongoing income without needing to do a lot of ongoing work.
When you go to work or dedicate time and energy to a side hustle, you are earning active income. In other words, you are actively working for your money. Passive income is the opposite. People who earn money while they’re sleeping or traveling around the world are earning passive income, and experts agree that this type of income is the key to building wealth and achieving true financial freedom.
Investing in Stocks: How to Get Started
At its heart, investing is simply trading money that you have today for significantly more money in the future. The good news is that you don’t have to have a lot of money to get started. Of course, investing greater amounts of money enables you to earn higher returns, but there is absolutely nothing wrong with starting small. Investing just 5 to 10% of your income could have a huge impact on your overall financial situation.
There are a few different options for getting started. If you are the do-it-yourself type, you will most likely want to choose stocks for yourself. If you would rather have some outside assistance, a robo-advisor may be your best option. For the purposes of this article, we will be focusing on the DIY approach.
When trying to generate passive income online, the first step is opening an online brokerage account. This is the fastest and most affordable way to get started. Once you’ve opened your account on a site like E*Trade or Ally Invest, you can start purchasing stocks.
Set a budget for yourself. The amount of money required to buy an individual stock varies depending on how much each share costs. There are shares that cost less than a dollar and others that cost thousands. Establishing your budget as a first step narrows down the available options and can help you avoid going overboard. Keep in mind that, since risk is always involved when buying stocks, you shouldn’t invest more than you could safely afford to lose.
Once you have an idea of how much money you can invest, you need to decide on companies to invest in. Highly successful brands like Amazon and Apple may seem like no-brainers, but when you are starting out on a limited budget, they may be out of reach. Instead, you may need to invest in smaller – but promising – companies.
Think about the brands that you use regularly, and research their stocks. You may find some that would make excellent first investments. Check the company’s website, or reach out to request a copy of the annual report.
You can also get some great ideas for investments by talking to your friends and family members – even if they do not play the stock market. Ask them about the brands and products they love, and find out if there are any newer ones that they think will do great things.
Once you’ve come up with some potential options, it’s time to jump in and start investing. Ideally, it is best to build a diverse portfolio with stocks from a wide range of companies. Diversification helps ensure that, even if one stock performs poorly, you will continue to make money as opposed to losing everything. Unfortunately, it takes time and money to build a diverse portfolio.
Start off small, and as you earn returns in your investments, reinvest in additional stocks to grow your portfolio. In doing so, you will be able to watch your money grow.
The Bottom Line
Investing in stocks is a good way to create a passive income stream and, eventually, start earning money while you sleep. As a beginner, getting started in the stock market can seem overwhelming, but if you set a modest budget and start small, you can start seeing gains and work toward building a larger, diversified portfolio.
When you open an online brokerage account, you typically gain access to all sorts of resources that will help you better understand how to play the stock market. Use these resources to your advantage. You can also ask for input and advice from friends, family members, or even a financial advisor.
When it comes to building long-term wealth and living the life of your dreams, generating passive income is a must. Whether you choose to invest in the market or decide to learn more about other passive income options, there are all sorts of ways to live the dream of making money while you sleep.