How to create a passive income from stocks in 2024? Here are 5 strategies

Nick Sundich Nick Sundich, May 9, 2024

Most people invest in stocks for capital gains (in other words for selling the stock for more than they bought it for), but it is possible to create a passive income from stocks and we look over how investors can do that.

Investing in shares can be a way to generate passive income. If you invest enough in companies that pay dividends, you can receive enough of a payout to count as income. 12 million super fund members received a combined $2.4bn in earnings on their CBA shares for FY23. And that does not even account for Australians who hold shares in their own right, outside their super fund. Those people received an average dividend of $3532.

Nonetheless its important to note that investing always carries some degree of risk, and there are no guarantees of returns. Even companies with an unblemished track record of dividends may opt to cut them or not pay them at all, letting down investors who would have reasonably expected a pay-out. In this article, we outline 5 strategies for investors to create a passive income from stocks. But first…

 

What is passive income?

Passive income refers to income that is earned regularly with minimal effort or active involvement. It’s money earned from investments, businesses, or assets in which the individual does not actively participate. Passive income streams can provide financial stability, flexibility, and the potential for wealth accumulation over time. With this out of the way, here are some strategies for creating passive income through investing in shares:

 

5 strategies for investors to create a passive income from stocks

 

1. Dividend Investing

One common method of generating passive income from shares is through dividend investing. Many publicly traded companies pay dividends to their shareholders regularly, typically on a quarterly basis. By investing in dividend-paying stocks, investors can receive a portion of the company’s profits in the form of dividends. These dividends can provide a steady stream of income without requiring active management of the investment.

 

2. Dividend Reinvestment Plans (DRIPs)

DRIPs allow investors to automatically reinvest their dividends into additional shares of the company’s stock. By reinvesting dividends, investors can compound their returns over time, potentially increasing their passive income stream.

 

3. Real Estate Investment Trusts (REITs)

REITs are companies that own, operate, or finance income-generating real estate properties. Investing in REITs allows investors to earn passive income from rental income and property appreciation without the hassle of directly owning or managing real estate properties. REITs typically distribute the majority of their income to shareholders in the form of dividends.

 

4. Index Funds and Exchange-Traded Funds (ETFs)

Index funds and ETFs are investment vehicles that pool together the funds of many investors to invest in a diversified portfolio of stocks or other assets. By investing in index funds or ETFs that track dividend-paying indices, investors can gain exposure to a broad range of dividend-paying stocks and potentially earn passive income from dividends.

 

5. Fixed-Income Investments

While not strictly shares, fixed-income investments such as bonds or bond funds (such as ETFs that invest in bonds like the iShares Core Composite Bond ETF) can also provide a source of passive income. Bonds pay periodic interest payments to investors, and bond funds distribute the interest income to shareholders. Investors can choose from various types of bonds, including government bonds, corporate bonds, municipal bonds, and high-yield bonds, depending on their risk tolerance and income objectives.

 

Conclusion

It’s possible for investors to create a passive income through shares. It is important, however, to conduct thorough research, diversify their investments, and consider their risk tolerance and investment goals. Additionally, investors should regularly monitor their investments and make adjustments as needed to maintain a well-balanced portfolio.

 

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

 

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