8 passive income ideas in Australia 2022

Passive income allows you to earn money without doing extra work. We’ve looked at eight ideas that could help you generate passive income in Australia.

What is Passive Income?

Passive income is money you can earn with little or no ongoing effort. For example, earning dividends on stocks or earning rental income from an investment property. This is compared to active income, such as your salary, where you receive income in exchange for working.

“Passive income is income you can earn while you’re sleeping or busy doing other things and it builds up in the background,” explained Leah Oliver, director of Minnik Chartered Accountants and heritage educator. .

How to earn passive income in Australia

There are two main ways to earn passive income in Australia: stocks and property. Within this, there are a range of different investments and strategies that you can consider. A common thread is that you will generally need some upfront money to get started.

“When it comes to wealth, you have to have the capital to start with,” Ms Oliver told Canstar. “It’s going to be hard to get off to a good start if you don’t have some cash reserve to project yourself forward.”

We’ve looked at some popular ideas that could help you earn passive income in Australia. If you don’t have cash available right now, we’ve also included a few ideas that don’t necessarily require a lot of upfront capital, but do require more effort.

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1. Shares

To generate passive income through stocks, Ms. Oliver says it’s best to consider long-term, stable investments.

“Focus on the types of stocks that are likely to offer stable, moderate growth over time, rather than high-risk investments. With wealth, there is no quick game,” she said.

In addition to the potential for capital growth, you can also earn passive income through dividends. If the company you invest in pays dividends, it will usually do so twice a year. The amount of dividend you might get will depend on the performance of the company.

The advantage of owning stocks for the purpose of earning passive income is that the ongoing costs are usually very low, although you generally pay brokerage fees for buying and selling stocks.

Remember that if you invest in stocks, the value of your investment may decline and there is no guarantee that you will earn any income. Past performance is no guarantee of future performance. If you are unsure about choosing your own investments or deciding whether investing in stocks is right for you, it may be a good idea to seek financial advice.

2. Managed Funds

Another opportunity to earn passive income is to invest in a managed fund. With a managed fund, your money is pooled with other investors and a team of professional investment managers invest it in assets, such as stocks, bonds, property or cash. Investors generally pay fees to invest in a managed fund.

When you invest in a managed fund, you own “units” of the fund. The share value will rise and fall with the market value of the assets in which the fund has invested. In addition to capital growth if the share price rises, some managed funds also pay out income (called “distributions”).

Exchange-traded funds (ETFs) are a form of managed funds that can be bought and sold in the same way as stocks of individual companies.

3. Bonds

Bonds could help you receive regular income. When you invest in bonds, you are lending money to a government or a company. In return, you will receive regular interest payments (called “coupons”). Bonds are considered less risky than assets like stocks and property, notes ASIC’s Moneysmart.

Bonds have a fixed value (called “face value”) when first issued. If you hold the bond until maturity, you can get back the face value of the bond. If you sell it before maturity, you will get the market value (which could be less than the face value).

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