How to invest $200K for passive income

Earnings that are generated from other ways than traditional employment or self-employment can be seen as passive income. This can include earnings from rental properties, limited partnerships, or other businesses without active involvement. In essence, with passive income you earn money with minimal effort, time, or work.

Having more than one reliable source of passive income might significantly help you achieve your financial goals. Also, you have the possibility to use it for daily expenses, contribute to a retirement account, or to precipitate debt repayment.

Before deciding on how to invest $200K, it’s important to evaluate your starting point with outstanding debts, your financial situation, and monthly expenses. Additionally, your investment choices and risk tolerance are as important as your financial goals to set the right course in investing.

Before putting money into any type of investment, you might want to first pay off any debt. The best way to do so might be paying off the highest-interest debt, as the compounding effect of interest can cause your trouble to increase exponentially. But it is also important to prioritize other debts, such as car loans and student loans.

If you don’t have any debts or have already paid them off, it’s crucial to evaluate your financial situation and what types of income you earn and how much. That can be income from working jobs and entrepreneurship, such as salaries, wages, commissions, and tips.

To find out how much of your monthly income you can invest, you need to have an understanding of your monthly expenses. It is also important to put aside money for unexpected expenses, or an emergency fund, before using the expendable money for investments.

<wbr><wbr>Depending on different products and strategies, there are varying degrees of risk. Generally, the higher the expected returns of an investment, the greater the risk. So, the best way to invest $200K is to determine your investment risk tolerance, which paves the way for your investment strategy. While there is no one “best” way, the best method will be the one that most closely meets your needs and goals.

Having financial goals is crucial to knowing how you would like to invest $200K and which investment strategy to apply for that matter. For example, if you’re aiming for retirement savings or want to invest in real estate, then it’s essential to align these goals with your risk tolerance and your investment strategy.

Investing can be a good way to generate passive income. The more money you invest, the more passive income you might create. If you are looking for where and how to invest $200K, here are some options you can consider.

Dividend stocks can potentially form a steady income stream, as investors receive regular dividends after purchasing shares in companies. In addition to dividends, which are derived from the company’s profits, investors can earn capital gains if the stock value rises.

If you’re a long-term investor, the best way to invest $200K might be in dividend stocks. For choosing the best dividend stocks, you might want to look into those that have consistently increased their dividend payout over a period of 25 successive years or more.

The upside of dividend stocks is that they require minimal effort from the investor, since companies manage the payouts. Additionally, you have the option to reinvest dividends and to compound the investment returns over time.

The downside of dividend stocks is that it sometimes requires a significant amount of money for an investment and that dividend payments depend on market fluctuations.

Index funds are mutual funds that mimic the performance of a stock market index. By investing in index funds, you can potentially generate a steady stream of passive income and also enjoy long-term capital gains. Index funds also tend to carry lower expense ratios than other mutual funds.

If you have a low risk investment tolerance and you don’t know what to invest $200K in, index funds might be a good option, as they are a tried-and-true way to build wealth. However, it is still important to consider that you could still face potential losses.

When someone is young, a portfolio with 70% or more in stocks and funds might make sense, however, when they get closer to retirement age, their portfolio’s asset allocation might shift in favor of safer investments.

If you have intellectual property rights for books, music, patents, or trademarks, you can receive payments in the form of royalties after your property is sold or used by others. Once the intellectual property is created and protected, royalties generate passive income and might potentially accumulate in the long term.

But keep in mind that royalties can be unpredictable and significantly low if your published intellectual property underperforms compared to your expectations.

With a real estate investment trust, you can earn passive income from real estate without owning real estate. REITs are publicly traded companies owning and managing investment properties. By investing in REITs, investors receive dividends from these investment properties. Those properties might include office space, retail space, warehouses, or multifamily housing.

With REITs you avoid the direct challenges of property ownership, such as repair and maintenance costs, as well as the time-consuming management. In addition, REITs can potentially provide more immediate returns than a direct real estate investment.

However, REITs are subject to market fluctuations and interest rate risks, which might impact their value and dividends.

Bonds are a relatively stable investment to consider when deciding what to invest $200K in for good returns. Companies and governments use bonds to fund projects, operational expenses, or other capital needs. In return, investors receive regular interest payments, which are made based on the agreed terms.

Bonds have a predefined duration, where the investor gets their money back with any remaining interest payments. As bonds provide predictable interest payments and a return on the principal investment, they are considered safer than stocks. 

Still, there are risks that come along with this kind of investment, such as credit risks, where the issuer is not able to pay, and interest rate risks, on which the value of the bond depends. Despite these risks, bonds might reduce volatility in your portfolio, but it is still important to consider any losses you may face.

If you’re still looking for other ways how to invest $200K for passive income, you might take alternative investments into consideration. Those might be private equity or venture capital, hedge funds, real estate, commodities, and other tangible assets.

Commodities, such as gold, oil, or agricultural products, might serve as a hedge against market volatility and inflation. With hedge funds, investors are able to invest in a variety of financial instruments. Also, private equity gives investors the chance to invest directly in private companies.

As with every other form of investment, alternative investments come with their own risks and tax advantages. Before investing, it might be helpful to consult a financial advisor who can work out with you which investment strategy you could pursue and how to keep a balanced portfolio.

At Raisin, you can put your $200K to work by investing it in high-yield savings accounts and help achieve your financial goals. Compare the top rates on the Raisin marketplace and get started today!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.