By Kendra Briscoe
While most people are doing their best to stay ahead of day-to-day expenses given today’s economic turmoil, an investment portfolio is more important to a sound financial future than ever. If leaving your nine-to-five to play on Wall Street is not an option, maybe you should look into passive, or couch potato, investing. Taking the couch potato approach may demand a large amount of money or time to set up the initial investment vehicle, but once it takes off, there should be very limited maintenance necessary.
Passive sources of income include rental property; dividend bearing stocks or mutual funds; savings accounts and CDs; and bonds. These investments are designed to pay off in the long term and require the investor to believe the investment is strong enough to survive market flutuations. It is also recommended that more than one avenue of passive investing is explored to ensure that if one stream of income collapses there are still other potentials for investment income. For the average person, passive investing will not lead to great wealth. It can, however, be a steady stream of income over an extended period of time, and a nice supplement to your working wages with very little daily work.
Highest Passive Earners: U.S. Cities (below)
Let’s say you decide to purchase rental property. In the beginning you will likely use some of your resources, shellings out a substantial amount of money to purchase the property and maybe fix it up. After the property has been rented, however, you should have very little to do besides depositing rent checks (and the occasional home repair) to make a profit on your investment.
Adding the right stocks to your investment portfolio takes time consuming research, especially if your goal is to add these stocks as passive, long term investments that you “set and forget”. Adequate knowledge of stocks you own will help you balance the risk/reward and better stomach temporary losses. If you are interested in getting into the stock market, I suggest starting with “Recommended Reading For African American Financial Starters”, which is featured on HBCU Money.
The 2008 Ariel/Schwab Black Investor Survey concludes that because wealth is a newer concept to African Americans they tend to tie their money up in lower risk investments, such as real estate and bonds, in an attempt to retain their riches. This may explain why 20% more European Americans than African Americans invest in the stock market. In essence, African Americans who invest the same amount as their European American counterparts can expect to see less return over time. According to Mellody Hobson, president of Ariel Investments, “Investors should remember that the stock market has averaged about 10 percent per year over the long-term.” Savings accounts, CDs, and bonds may guarantee a certain percentage of return, but these returns can be more than doubled by wisely investing in stocks.
Passive investing requires some type of significant contribution on your part, whether time or money. Once the initial work is complete, though, you will be able to sit back and relax knowing that your money is working for you while you are working on other things.