What is passive income and how do you get some?
It’s not as hard as you might think. Every person who has ever retired or will retire has a system for passive income. The good news is you don’t have to wait for retirement to start building a passive income system. You can start right now.
You may not be a rich celebrity, but you can learn a little something about passive income from them. Successful musicians have multiple streams of passive income. They write, produce, and promote their art and leave it to others to sell copies while they sit back and continue to receive their royalties. They also collect passive income by investing their profit. The second method holds the key to how you can easily generate passive income for yourself.
So, what’s the best and easiest way to generate passive income? Dividend investing. Before you run off thinking it isn’t for you because you don’t have fat stacks of cash to invest, hold up.
In the past, you needed a broker as well as access to expert knowledge and a large amount of money to invest. Today, in the age of the internet, things have changed. Everyone with an internet connection has access to the markets and it has become faster, easier, and lower risk than it’s ever been before.
To get started you only need 5 things, and they’re all easy.
1) A little time.
2) A little money.
3) A computer with internet access.
4) A simple framework for what stocks to add to your investment portfolio.
5) An investing account with a financial institution.
The first three of these should be beyond easy. The last two aren’t much harder.
How to Choose a Dividend Stock to Invest In
The good news is that all of the information needed to choose a good stock for your investment portfolio is available for free on the internet.
Not all companies issue dividends (by the way, a dividend is just a share of the profit or retained earnings distributed to everyone who owns shares in the company), so start by choosing a company that issues dividends.
The idea here is that you want to keep the risk as low as possible. You can do this by choosing a company with a strong history. Look for companies with 4 qualities.
1) A long history of distributing dividends.
2) A company that has never reduced its dividends.
3) A company that regularly increases the amount of its dividend.
4) A company that has never suspended its dividend.
How to Get Access to the Stock Market
Most major financial institutions offer online stock trading platforms. Typically, you will need to provide some general information that will verify your identity.
You’ll need a small amount of funds, at least enough to buy one share and pay the trading fee. You can buy as few or as many shares as you can afford or are comfortable with owning in a particular company.
Once you have provided the required information and funded your account, you’re ready to go. Remember that this is a self-directed trading account. You do not need to hire a broker.
How Much Cash Do I Need to Get Started?
In the past, you were required to buy a certain amount of shares as a minimum purchase (at least without incurring a large penalty fee) as well as pay your brokerage fees. Today you can open an account that allows you to purchase your own shares without the need for a broker, and smaller ‘lots’ of shares may be purchased. Brokerage fees for these types of accounts have come down to very reasonable levels.
When Do I Start Seeing the Passive Income?
Most companies distribute dividends quarterly, while others may distribute monthly. There are a couple of important dates you should know when becoming a dividend investor.
The Ex-dividend Date is the date on which you must own the shares in order to receive the next dividend issue.
The Payment Date is the date the company distributes the dividend.
A Few Parting Thoughts
Most dividend investors tend to buy and hold their stocks for long periods, only selling if there is a strong, compelling reason to do so.
Most dividend investors will establish an approximate range of dividend yield which they are comfortable with. Too low and it may not provide their desired distribution of funds. Too high and it may indicate underlying issues with the company they are investing in.
These companies may also provide the opportunity for a capital gain as well as a dividend yield.
Start Small for a Big Future
While you don’t need much capital to get started in dividend investing, adding regularly to your portfolio can produce incredibly significant passive income over time. While each of us needs to take personal responsibility for our financial choices, dividend investing and passive income may provide the future you dream of.