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Generating a passive income of €2,000 per month without excessive risks is a shared goal for many, especially in today’s economy where living costs are on the rise.
While there are no investment methods entirely devoid of risk, certain strategies, if managed properly, can provide automatic income every month.
Among the primary options for creating passive income are various savings instruments, investments in financial markets, and alternative assets.
All these avenues require preliminary research, initial commitment, and capital to get started.
In this article, we delve into five effective ways to secure consistent passive income over time, leveraging different financial tools that utilize compound interest.
Using a simulated asset allocation of a total capital of €250,000, we will explore how to generate a monthly passive income of approximately €2,000.
Investing in high-dividend yield stocks is a common strategy to diversify your stock portfolio and secure a passive income, while mitigating concerns over market fluctuations.
By focusing on companies with a track record of consistent dividend payments, one can achieve a steady income stream.
The risk diminishes with diversification and by choosing strong companies, like Dividend Aristocrats; however, it remains essential to remember that stock values can fluctuate.
For instance, let’s simulate a portfolio consisting of five global stocks with an average dividend yield of 11.45%:
| Company Name | Sector & Country | Dividend Yield | Investment Capital (€) | Monthly Income (€) |
|---|---|---|---|---|
| Aedas Home | Real Estate, Spain | 14.40% | 16,000 | 192 |
| Stellantis | Automotive, Netherlands | 11.39% | 16,000 | 151.90 |
| Banco BPM | Banking, Italy | 9.71% | 16,000 | 129.50 |
| Metro | Retail, Germany | 12.01% | 16,000 | 160.10 |
| Xerox Holdings Corp. | USA | 9.77% | 16,000 | 130.30 |
Investing around €80,000 in high-dividend stocks could yield over €9,160 annually, translating to approximately €763.75 per month.
For those who favor passive management and broader portfolio diversification, Exchange-Traded Funds (ETFs) that track indices of high dividend-paying companies may be an ideal solution.
ETFs minimize the risks associated with single-stock investments while also reducing management costs.
Various online platforms can help identify dividend-focused ETFs.
For example, the Global X SuperDividend® UCITS ETF D, which tracks the Solactive Global SuperDividend Index, boasts a dividend yield of 11.53%.
With an investment of €80,000 in this ETF, one can generate a monthly passive income of approximately €768.70 from the dividends.
Despite central banks winding down the interest rate hike cycle, fixed deposit accounts remain an attractive option.
Although they don’t provide very high returns, they offer security, as funds are insured up to €100,000 by the Interbank Deposit Protection Fund (FITD).
The best fixed deposit account available currently offers an interest rate of 4.30%.
Assuming a deposit of €60,000, one could achieve an annual yield of €2,580, translating to about €215 per month.
Real estate crowdfunding allows investors to participate in property projects with smaller capital commitments, receiving returns based on their investment share.
Approved platforms like Re-Lender or Concrete Investing provide access to diversified investment opportunities.
While average annual returns can range between 8-14%, it is crucial to diversify within this space and select reputable platforms to mitigate risks.
If one were to invest €20,000 with an average return of 11%, the potential monthly income would be around €183.35.
P2P lending is a unique form of crowdfunding that allows individuals to fund personal or business projects via loans in exchange for interest payments.
Platforms like Smartika, operated by Banca Sella Holding, offer pre-screened projects deemed reliable.
However, it is important to remember that while P2P lending can provide attractive returns, there is always the risk of default.
In Europe, returns from P2P lending platforms range from 3%-4% to as high as 12%-14%, depending on the loan’s risk profile and duration, which typically ranges from 12 to 48 months.
Given its higher risk compared to the prior options, if we allocate 4% of our total capital to P2P lending, investing €10,000 with a 9% average return could yield a monthly passive income of roughly €75.
To achieve a passive income of €2,000 per month without excessive risks, a total investment of €250,000 could be diversified into five different strategies:
| Investment Type | Investment Capital (€) | Average Yield | Monthly Income (€) |
|---|---|---|---|
| High Dividend Stocks | 80,000 | 11.45% | 763.75 |
| Dividend ETFs | 80,000 | 11.53% | 768.70 |
| Fixed Deposit | 60,000 | 4.30% | 215 |
| Real Estate Crowdfunding | 20,000 | 11% | 183.35 |
| P2P Lending | 10,000 | 9% | 75 |
TOTAL: €250,000 | Average Yield: 9.63% | Monthly Income: €2,005.75
For further insights on this topic, consider reading the course from Money.it titled “Forever Rich: A Practical Guide to Living Off Income”.
DISCLAIMER: The information herein is intended solely for informational purposes and should not be regarded as investment advice.
Readers maintain full responsibility over their investment decisions based on their individual risk tolerance and time horizon.
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