18 Passive Income Opportunities: What Can They Pay?
Passive income refers to earnings that continue to flow without the need for constant, hands-on work. Popular sources include investments, rental properties, and various side hustles.
What is passive income?
Passive income refers to money earned with little to no daily effort. It typically comes from investments or business ventures that continue generating revenue without requiring constant involvement.
Examples of common passive income streams include rental properties, dividend-paying stocks, and interest from high-yield savings accounts. Less traditional options might be owning vending machines or publishing content that generates long-term revenue.
In most cases, building passive income requires an initial investment of time, money, or both. Once established, however, it can provide ongoing earnings for years. Keep in mind that taxes on passive income vary depending on the source, so it’s important to maintain accurate financial records.
Ways to earn passive income through investing
1. Dividend Stocks
A popular way to generate ongoing income is by investing in dividend-paying stocks. These companies share a portion of their profits with shareholders, usually every quarter. High-quality dividend stocks often increase their payouts over time, allowing your earnings to grow in the future.
Dividend stocks also tend to be less volatile than pure growth stocks, making them useful for diversification and stability in your portfolio. Many investors choose to reinvest dividends, which can compound returns if the stock performs well.
How much can you earn?
The payout varies widely. For example, dividend aristocrats — companies known for consistent and reliable dividends — currently yield anywhere from under 1% to over 6%. If you owned a stock with a 2.28% dividend yield and invested $10,000, you’d earn about $230 in a year, excluding stock price appreciation and taxes.
2. Dividend Index Funds and ETFs
Instead of choosing individual dividend stocks, you can invest in dividend-focused index funds or exchange-traded funds (ETFs). This approach is more passive and hands-off, as these funds hold a broad mix of dividend-paying companies designed to track the performance of an index. With a dividend ETF or index fund, you gain exposure to multiple dividend stocks in a single investment.
To get started with dividend funds or any publicly traded asset, you’ll need a brokerage account. (Check out our list of the top online brokers.)
How much can you earn?
Dividend funds offer varying yields, much like individual stocks. For example, if you invested $10,000 in a fund yielding 5%, you’d earn a little over $500 in a year. This doesn’t include potential growth in the fund’s value or taxes you may owe.
3. Bonds and Bond Index Funds
Unlike stocks, which give you ownership in a company, bonds allow you to lend money to corporations or government entities at the federal, state, or local level in exchange for interest payments. Bonds are generally viewed as a safer investment than stocks, though they usually provide lower returns.
Financial advisors often recommend allocating part of your portfolio to bonds due to their stability and reduced risk compared with stocks. As you approach major financial goals, such as retirement, increasing your bond allocation can help preserve your wealth and reduce market volatility.
How much can you earn?
Bond returns depend on the type of bond and the length of time you hold it. For example, in 2024, the average annual return on a 10-year U.S. Treasury bond was 4.21%. If you invested $10,000, with interest paid twice a year, you would receive about $210 every six months.
4. Real Estate Investment Trusts (REITs)
If you’d like to earn passive income from real estate without the hassle or large upfront cost of purchasing and managing properties, real estate investment trusts (REITs) can be a good alternative.
Much like mutual funds, REITs are companies that own and manage income-generating real estate, such as shopping centers, offices, apartments, and hotels. They typically offer high dividend payouts, though the structure and accessibility of REITs can vary. Some are publicly traded on stock exchanges, while others are private and harder to access.
For beginners, publicly traded REITs are usually the simplest option since you can buy them through most online brokers. To further spread out risk, you can also invest in REIT-focused mutual funds or ETFs, which pool multiple REITs together.
How much can you earn?
The FTSE NAREIT All Equity REITs Index, which measures equity REIT performance, delivered an average annual return of 11.8% between 1972 and 2019—slightly higher than the S&P 500’s 10.6% over the same period. For passive income specifically, the dividend yield is the key factor.
For example, investing $10,000 in a REIT with a 3.68% dividend yield would generate about $373 in one year.
5. Money Market Funds
Much like high-yield savings accounts, money market funds are currently offering attractive interest rates, often above 3%. These are mutual funds that invest in relatively low-risk assets, such as short-term government securities or corporate debt, which generate income. In some cases, the earnings may even be tax-exempt.
It’s important to note that money market funds are different from money market accounts. While money market accounts function more like savings accounts and are usually FDIC-insured, money market funds are investment products without the same insurance protection.
How much can you earn?
As of now, the best money market funds are paying interest rates above 4%. With an initial investment of $10,000, compounded monthly, you could earn more than $400 in one year.