1. Passive Investments – The Share Market
Passive Investments are a simple and effective way to build long-term wealth. One of the best places to start investing is in the share market, such as the Australian Stock Exchange (ASX). Investing in shares may seem daunting and risky to begin with. However, a calculated approach over time can lead you on the path to creating long-term wealth. Getting into the right Mindset can enhance the way you think and ensure you are staying focused to achieve your SMART goals.
Individuals are at risk of stagnant growth who choose to leave their money deposited in the bank. In this climate of low-interest rates, funds sitting in the bank will not get any exposure to compound growth through dividend reinvestment. Regular investment in shares through a dividend reinvestment plan is a long-term strategy. One that I have employed over the last ten years and can be an effective way to build wealth over time. If you are starting out investing and want to invest a small amount try some of the different Micro-Investing apps available in the market.
Passive Income
Passive income is the ability to grow an income through minimal active effort and contribution. You can build a passive income through different types of investments that can grow your wealth over time. Passive investments take time to build up in order to generate a steady income. However, with regular investment over the long term, you can create new income streams to build your passive investments.
Here are 5 different ways to create a passive income stream online that include:
2. Dividend Reinvestment
Firstly, dividend reinvestment is the process of a shareholder electing to reinvest the dividend paid to them from a company. Secondly, these dividends are paid out from profits made by a company to shareholders in proportion to the equity or shares they hold in the company. Finally, reinvesting a dividend is in contrast to a shareholder withdrawing the cash and using it for a different purpose. The benefits of this passive investment strategy include:
- Automated investing – Less risk over time through dollar-cost averaging
- Regular income – Dividend paid bi-annually or quarterly
- Cheap – No brokerage fees on the additional shares acquired
- Accessible – Can choose to toggle the re-investment option on and off
- Compounded returns – Grows your initial investment year on year
The added benefit for Australian investors is that they can maximise the tax incentive of franking credits. I have outlined more details on this in a separate blog to boost your income. For more information on investing tips, The Barefoot Investor outlines some key strategies to make better financial decisions for your future.
3. Exchange Traded Funds (ETF’s)
Passive investment through Exchange Traded Funds (ETF’s) by retail investors has surged in recent years. Each ETF contains a mix of securities or bonds bundled together. These funds are traded are as one share on a share market such as the Australian Stock Exchange (ASX).
The main advantage of investing in an ETF over a single share is that they can provide a low-cost diversified investment that limits your downside risk exposure. Moreover, the diversity of shares invested in the fund can help mitigate the risk of losing the initial capital invested.
I have previously acquired an ETF Betashares Nasdaq 100 ETF ASX: NDQ that tracks the US share market index. More importantly, NDQ allows me to get exposure to the US market. An added advantage is that the fund is still traded through the ASX as the NDQ ETF domiciles in Australia.
There are also other ETF’s that track the world index or some of the largest companies on the ASX. An ETF well known to investors is Vanguard’s offering Vanguard Australian Shares Index ETF ASX: VAS. How and where you invest your wage will require careful research. Do your own research to adopt a tailored strategy to meet your specific needs and timeframe.
4. Share Trading Platforms for Passive Investments
Many online brokers are at your disposal that enables you to start investing in the share market. There has been a rise of online brokers such as Robinhood in the US. Online brokers offer incentives for instance free brokerage that has created a wave of new retail investors in the share market. It is worth researching the different Product Disclosure Statements (PDS) for each broker. Furthermore, by reading this document carefully you will better understand whether their service offering is right for you.
Some of the more popular brokers to join the online broker market include CommSec
, SelfWealth
, and Superhero
. These share-trading platforms offer lower fees than their competitors. However, make sure you do your research that enables an informed decision on the broker that will best suit your investing strategy.
Wage investor focuses on investment strategies that can build long-term wealth to reach financial independence. Please note that this post is general in nature and not financial advice.
