Here is the greatest passive income machine you will find right now | personal financing
Buying dividend stocks. Investing in real estate. Create a YouTube channel. Receive royalties from a book you’ve authored. These are just a few ways you can make passive income. Different people will be attracted to different approaches.
However, I think there is one way to earn extra money without much effort and that especially stands out. Here is the greatest passive income machine you will find right now.
Closed box status
Perhaps the biggest downside to some of the popular passive income generation methods is that they are not all passive. Writing a book or creating a YouTube channel, for example, requires quite a bit of work.
Another problem is that some of the alternatives will not get you as much passive income as you would prefer. You can find stable dividend stocks and passive ways to invest in real estate easily enough. However, many of the safer options offer annual returns of less than 5%.
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Closed Funds (CEFs) provide an answer to these challenges. It is as easy to buy online as stocks. In fact, CEFs trade like stocks and are available through your brokerage. But they offer a lot more variety than buying a single stock does.
This particular type of mutual fund also gives investors a variety of different ways to generate passive income. Some CEFs focus on dividend stocks. Others specialize in bonds or write covered call options on stocks.
You can find many CEFs with annual returns of 6%, 7%, or even higher. In general, these funds offer much greater returns than the average dividend stock. It does not require much effort.
It is entirely possible to generate approximately $70,000 in passive annual income by investing $1 million in crowdfunding funds. Here are some examples of how this can be achieved.
The Aberdeen Global Dynamics Dividend Fund (NYSE: AGD) Owns shares of companies all over the world. Many (though not all) of these stocks offer solid dividends. It includes its highest collectibles appleAnd the MicrosoftAnd the the alphabetAnd the Abvi. CEF’s yield is currently in excess of 7.8%, which is increased using leverage. Over the past 10 years, the Aberdeen Global Dynamics Dividend Fund has generated a total return of over 120%.
For investors who want to diversify using bonds, The Bernstein Global High Income Alliance (NYSE: AWF) Worth a look. CEF invests primarily in corporate and government bonds. yields 7.6%. Fund managers also adjust the portfolio’s risk level based on market conditions.
The BlackRock Enhanced Dividend Fund (NYSE: BDJ) The fund writes covered call options on stocks. Typically, at least 80% of the fund’s total assets are in dividend stocks. CEF’s yield is currently 7%. It has generated a total return of 195% over the past 10 years.
Few things to take into consideration
There are many CEFs to choose from in addition to the three listed funds. Yields are not the only thing to consider when choosing a CEF.
Always know the fund’s annual expense ratio. Some CEFs have spending percentages of less than 1%, but others can be higher. Also look at the net asset value (NAV) versus the CEF price. In many cases (including the three CEFs discussed earlier), you can buy money at a discount to the net asset value.
Many CEFs use leverage (usually involving borrowing at short-term rates) to increase returns. Funds with high levels of leverage can be particularly volatile. None of the previously mentioned CEFs have a leverage of more than 30%.
Finally, examine the overall performance of CEF. Keep in mind that this money usually won’t grow as much as a long-term investment in stocks. The passive income they provide is a trade-off for low growth. However, the best CEFs will still be able to increase in value over time while bringing you consistent income month after month.
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Susan Fry, CEO of Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights holds positions at AbbVie, Alphabet (A stock), Apple and Microsoft. Motley Fool has and recommends positions at Alphabet (A), Alphabet (C), Apple, and Microsoft. Motley Fool recommends the following options: long March 2023 calls worth $120 on Apple and short March 2023 calls worth $130 on Apple. Motley Fool has a disclosure policy.