Earning money without having to work for it: That may sound too good to be true, but it is perfectly possible if you have enough savings to invest. In this guide, moneyland.ch looks at ways to earn a passive income.
As a rule, earning money requires an active effort – such as working for an employer or starting a business. But there is also such a thing as passive income that does not require your time and work. In this guide, moneyland.ch outlines various options for earning passive income.
Interest
If you have a substantial amount of savings, you can earn passive income with interest-bearing investment vehicles. These include:
With the exception of peer-to-peer loans, interest is generally paid out to you once a year. Some savings accounts only pay interest on the part of your account balance that falls below certain thresholds. Make sure to check these limits when choosing a savings account.
It is also important to check the limitations on withdrawals. Most savings accounts have a limit for notice-free withdrawals within a certain timeframe. For larger withdrawals, you must give notice in advance. Otherwise, you may be charged a penalty fee.
Fixed-deposits and medium-term notes have a fixed investment term. Your money is tied up for the length of the term. When early withdrawals are possible, you will typically be charged high penalty fees.
It is important to note that earning passive income from interest-bearing products requires very large amounts of capital. That is because in Switzerland, interest rates are generally very low. If, for example, you use a savings account with an interest rate of just 0.1 percent, you would theoretically need to have more than 60 million francs in your account to generate a passive income of 60,000 francs per year.
Dividends
When you own shares in companies, you may receive dividends. Together with gains in the value of your shares, these dividends make up the return on stock investments. Most companies pay out dividends on a regular basis, with Swiss companies typically distributing dividends once a year, while US companies pay dividends every quarter. You should be aware, though, that there are companies that do not pay dividends at all.
If you want to generate passive income from dividends, you should focus on stocks with high dividend yields. In addition to individual shares, you can also invest in dividend ETFs. These ETFs invest in companies with exceptionally high dividends.
Annual dividend yields of up to three percent – relative to the share price – are common, although some stocks have significantly higher dividends. If, for example, you consistently receive dividends equal to three percent of the value of your stock portfolio each year, you would need to own shares worth 1.8 million francs to receive a passive annual income of 60,000 francs.
You can find more information in the guide to investing in dividend stocks. The guide also tells you which tax-related aspects to consider.
Rental income
If you own properties that you do not use yourself, you can rent out these properties to earn a passive income. Depending on your property’s location, age, and features, the passive income you can earn from rents can be very substantial.
However, keep in mind that as a landlord, you are also responsible for managing and maintaining the property. This requires both time and money – which means that rental income is not entirely passive.
Investing in real estate for the purpose of renting it out can be highly lucrative. However, it requires a substantial amount of capital. The high capital requirements place buying property to rent out of the reach of small investors.
But these investors can still earn income from property indirectly by investing in real estate ETFs or using real estate crowdfunding services. With these instruments, any rental income is distributed to you indirectly in the form of dividends.
Other ways to increase your income
Passive income is just one of many ways to increase your income. Taking on a side job or selling unused belongings are other examples. moneyland.ch has compiled various options and tips in the guide to increasing your income.
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