As you get older, ideally your transition into retirement will be stress free. You’ll feel as though you are able to enjoy it the way you like. But to achieve this you need to start planning early and be intentional about how you will fund the retirement lifestyle you want.
Passive income can provide income without having to pour hours of your time and energy into your livelihood. Although passive income streams need attention to deliver results, they are a great way to supplement your retirement nest egg and pension.
From rental income to renting out your parking space, there are many ways to earn a passive income. This blog focuses on investments and how these passive income streams could help you earn more.
Passive income is an income stream that, once you set it up, continues to work for you while you don’t work for it.
Passive income streams can diversify your earnings. It could also increase your earning potential and add flexibility to your income. Whether it’s to supplement existing income, boost retirement funds or be your only source of revenue, they are useful for those who want to earn more.
Below is a beginner’s guide to passive income ideas. This will give you a taste of different ways to generate passive income in New Zealand by investing.
A managed fund is a pool of money organised and distributed by fund managers on your behalf. This pool of money includes your funds and the funds of other investors.
Generally, you will be involved in the setup of your account, how much you want to invest, and what sectors or companies you’d like to invest in. After that, managed funds are generally hands off, which makes managed funds a passive income stream. Costs associated with the management of your fund vary between different fund providers.
Like any share investment, the value of your investment may drop if the value of the stocks or bonds drop. Managed funds offer uncomplicated diversification. This can mitigate potential risk that comes with putting all eggs in one basket.
A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. A REIT is a type of managed fund.
REITs are publicly listed. This means you can invest into a small part of the company, owning a small portion of real estate that the company looks after.
REITs provide ways to generate passive income, diversify your real estate portfolio and build wealth over time.
A dividend share is a share that routinely pays dividends to their shareholders. As a company makes a profit, a portion of these profits are fed back to investors in the form of dividends. You can choose to take the funds or invest them back into the company for additional shares, or a combination of both.
Dividend shares can differ from other shares in the way that companies that don’t offer dividends are reinvesting revenue into the company. Reinvesting revenue could lead to increased value of the shares held by the investor in the long run.
The potential in dividend returns rates can vary and many well-known New Zealand companies pay dividends. Examples include Spark, Fonterra, NZME and Sky.
Dividend shares are at the mercy of the stock market and fluctuating share prices. Maintaining diversity throughout your passive income streams is crucial to minimise the effects of unpredictable share prices. Read more about other share investments in our blog.
Rental income is one of the most popular passive income streams in New Zealand. Rental income is funds that you, the landlord, receives from your tenants in exchange for the use of your real estate property. This includes any fees or payments associated with the rental agreement, such as bond and late payment fees.
Rental income can help you pay down debt, decrease your mortgage repayments, invest further, or provide more financial freedom. Rent rates can also be increased when the property value appreciates over time.
Rental income is considered to be a stable stream of passive income because of the strict tenancy policies in New Zealand.
You can use regular monthly or annual payments for investments. This helps build your retirement plan. It also gives you extra money for holidays or family activities. It may also provide investors with additional diversification for their portfolio, helping spread risk and reducing volatility.
The risks associated with rental income include late or ceased rental payments and damage to property.
Peer to peer lending involves lending your money to a non-bank institution, that will be used to invest in a loan that they have registered with them. As a passive income stream, your investment is managed for you by the institution.
The difference between other peer to peer lending institutions and Southern Cross Partners (SCP) is that SCP invests their money first, meaning there is generally no wait times for your investment to begin and the loans available can be invested in immediately.
Peer to peer investments are usually short term and offer higher interest rates. Of course, like any investment, it is not without risk. Borrowers could default on their loan and capital could decrease along with other market and economic shifts that could affect investments. For more on potential risks see our website here.
For an in-depth look into peer-to-peer lending, please read our blog.
Passive income investments could be a valuable way to diversify your investments and build wealth, without the hassle that comes with more hands-on investments. Ensuring you do your research and seek professional advice is essential to the health of your investments.
Remember, although these passive income streams are potentially less demanding than other income streams, they still require significant set up and monitoring to get the most out of your money.
If you'd like to learn more about SCP peer-to-peer investments, you can speak to a member of our team today.
Southern Cross Partners is licenced to provide peer to peer lender lending services under the Financial Markets Conduct Act 2013. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with a financial adviser before making any investment decisions.