It’s been a rough few years for many in the developed world, regardless of the fact the S&P 500 may be trading near all-time highs. Aside from inflation and rising interest rates on the horizon, layoffs are still growing in 2024 across different industries.
Economic uncertainty drove tough decisions from many management teams, impacting a range of employees from grunt workers to middle managers. Unfortunately, these trends could continue in 2024.
Experts anticipate heightened unemployment and intensified job market competition, leading to more selective hiring practices with higher employer expectations. Despite a strong job market and low unemployment, major companies across sectors continue to announce significant layoffs. That surge may raise concerns about job security and the labor market’s strength.
In the face of the cost of living crisis, many prioritize financial stability. Some opt for over-employment, taking on multiple remote white-collar roles for additional income. While this can be effective, it may lead to burnout or unsustainable living. Others seek advancement within their corporation for financial security.
Regardless of career path, establishing passive income streams can be crucial to creating long-term financial stability and the ability to invest in future endeavors. Here are three passive income opportunities to consider.
Property Rentals
Investing in rental properties offers passive income and wealth accumulation. Landlords buy and lease real estate to tenants, generating a steady income (and one that hopefully covers one’s expenses with a little left over). That income may cover expenses but also generally requires an upfront investment and management effort, with investors facing the brunt of potential market fluctuations.
Rental properties offer a long-standing avenue for passive income. The rental market remains robust, with over a third of U.S. households renting homes. High demand persists due to limited home inventory and evolving workforce preferences.
Traditional investment properties have long been favored for generating passive income through rentals. Investors buy properties, find tenants and collect rent. They choose between long-term stability or higher returns with vacation rentals, balancing risk and effort accordingly.
Buying a new property isn’t always necessary to enter the rental property business. Existing properties like vacation homes or inherited estates can be rented out for passive income and long-term equity growth, potentially building generational wealth.
Another idea when renting out properties is house hacking. That has become a popular strategy and involves renting out space within your home. Homeowners can offset expenses and generate passive income by utilizing extra rooms, aiding in mortgage payments and reducing housing costs.
Another rising trend in real estate is the “built-for-rent” market, where companies construct properties solely to rent. These strategically located homes cater to investors seeking consistent passive income, as companies manage all rental aspects, providing hassle-free ownership.
Lastly, you may opt for mixed-use properties that combine residential and commercial spaces, offering a unique income opportunity. To maximize returns, strategic tenant selection is crucial. Choosing a prime location and offering flexible rental options further boosts income potential.
Generating passive income through real estate can fortify financial stability. Rental properties offer steady revenue and equity growth potential. However, active involvement, strategic planning and market knowledge are essential for success.
Owning Dividend Yielding Stocks
Dividends, periodic payments from companies to shareholders, are ordinary among mature firms, whereas growing companies often reinvest profits. Dividend stability varies; some firms halted payouts amid pandemic losses. Dividend-paying stocks offer income and potential protection during market downturns.
Buying stocks from companies that give out generous dividends can be advantageous. One, established companies mainly increase their dividends every year. Take a look at S&P Global Dividend Aristocrats. There, individuals can find companies that have been consistently raising their dividends in the past decade or more. In fact, most of them see almost a 3% annual return — good money for investors!
Between 1980 and 2019, dividends significantly influenced stock market gains. Much of the S&P 500’s returns originated from dividends, surpassing returns without them. Moreover, dividend yields from such companies often surpass those from fixed-income options like government bonds.
While investors often overlook dividends’ impact on total ROI, they are crucial in equity evaluation. Unlike metrics such as price-to-earnings ratio, dividends offer a reliable measure of a company’s performance. Financial statements can be manipulated, but dividend payments reflect actual cash flow, indicating a company’s strength.
Consistent dividend growth signifies sustained profitability, offering stability amidst stock price fluctuations. Additionally, dividends change annually, providing a stable analysis point unaffected by daily stock price fluctuations.
When it comes to volatility and reducing portfolio risks, investing in dividend stocks is the best move to take. Throughout history, dividend-paying stocks outperform non-paying ones, especially when the market declines. Although this trend became different when COVID-19 struck the world, dividend stocks still stood tall, similar to tech stocks being resilient during the financial crisis.
Just Buy Bonds
Perhaps the least sexy option on this list, investors always have the option of just going with plain old-fashioned bonds for income.
Whether it’s corporate, municipal or government bonds, there are plenty of options for investors across a wide range of yields and risk levels. Government bonds are by far the safest, with U.S. Treasuries seen as the creme-de-la-creme of this space. That’s my preferred option right now, with the majority of my portfolio stashed away in medium- to long-term bonds.
We haven’t seen 4%+ bond yields in years, and being able to lock in such high rates at effectively zero risk certainly provides a new hurdle rate for other investments. If you don’t think you can beat a 4% guaranteed return or you think we could be heading into a recession in short order (just look at the inverted yield curve), take the guarantee.
Over the very long term, most investors should think about shifting their portfolio allocations toward bonds, especially when nearing retirement. The steady income these securities provide in retirement can be preferable to the otherwise volatile stock market, and they serve as a hedge against uncertainty — something I like right now.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
