Unlike the income you earn from a job, passive income is the income you generate outside of work. It’s always a smart idea to have multiple income streams, including both passive and earned income.
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While there are a number of ways to earn passive income, Suze Orman, money expert and co-founder of emergency savings startup SecureSave, recommends one method above the rest.
Earning passive income doesn’t need to be difficult. You can start this week.
Invest in Dividend-Paying Stocks or Exchange-Traded Funds
Some investments pay a dividend — a regular distribution of profits to shareholders. Because you can depend on this income at regular intervals, these investments can be a reliable source of passive income.
“Start investing in dividend-paying stocks or ETFs,” Orman told GOBankingRates. “There are many stocks out there now that are paying 5% or 6% or more.”
Orman recommends continuing to invest in these assets at regular intervals to keep your passive income growing.
“If you just keep dollar cost averaging into them, you could build yourself a tremendous portfolio — especially with slices [aka fractional shares] — by the time you get older,” she said. “You can have a portfolio that’s generating tremendous dividends for you for passive income without you caring if the markets go up or down, because your income would be going up — especially if you invested in the aristocrats.”
Stocks that are considered to be dividend aristocrats due to their long history of returns include Walgreens Boots Alliance (WBA), 3M (MMM), IBM (IBM) and Chevron (CVX).
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Why Orman Does Not Recommend Real Estate as a Form of Passive Income
Real estate has historically been considered a gold standard as far as passive income investments are concerned, but Orman believes this may no longer be the case.
“I would be careful with considering real estate to be a passive investment,” she said. “If you look at what’s happening to home insurance and the premiums, it’s [no longer a matter of] can you just afford to buy a home. Now it’s can you afford to buy it and keep it? There are many people who are able to afford a home but can’t afford to keep the home, because their home insurance premiums went from $2,000 a year to $10,000 a year.”
This will continue to become an even bigger issue as natural disasters become more common.
“Be very careful with real estate everybody, especially with natural disasters in all areas — not just hurricanes and earthquakes, but tornados, floods and everything else,” Orman said. “So I’m not sure about real estate being a passive investment anymore as easily as it used to be.”
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This article originally appeared on GOBankingRates.com: Suze Orman: This Is the Best Way To Generate Passive Income
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