Make money while you’re asleep, isn’t that the goal? Then let’s talk investment. I will tell you about a couple of investment vehicles that can generate you passive income.
Investopedia defines investment as the act of allocating resources, usually money, with the expectation of generating an income or profit. And an investment vehicle as any method by which individuals or businesses can invest and, ideally, grow their money.
Types of investment vehicles.
- Lending Investments.
With lending investments, people allow their money to be used by another person or entity with the expectation it will be repaid. The lender typically charges interest on the loan so that they earn a profit once the loan is repaid including the interest charges. This type of investment is low risk and provides low rewards. Examples of lending investments include bonds and certificates of deposit.
Bonds are a way for corporations and governments to raise money. When you buy bonds you are entitled to receive periodic interest payments and the return of the bond’s face value when it matures. There are two ways to make money from investing in bonds;
- Hold the bond until its maturity and collect interest payment on it.
- Sell the bond at a price higher than the amount you paid for it.
Treasury Bonds are offered by a government. The Central Bank of Kenya for example, auctions Treasury Bonds on a monthly basis and offers a variety of bonds throughout the year. You can find information on how to invest on government bonds on their website.
Certificates of Deposit:
A certificate of deposit (CD) is a type of savings account usually issued by commercial banks, which restricts your access to the money you invest but offers much higher interest rates than those associated with regular savings accounts.
The bank pays interest at regular intervals until the date of maturity, at which time the account holder receives their original investment, plus all of the interest. A CD with a shorter maturation time will offer you a decent return but it pays to invest in a longer-maturing CD, which usually has a higher yield.
- Ownership Investments.
Investors who delve into ownership investments own particular assets that they expect to grow in value. Ownership investments include stocks, real estate, precious objects, and businesses. Stocks, also called equity or shares, give investors a stake in a company and its profits and gains. Real estate owned by investors can be rented or sold to provide higher net profits for the owner.
Stocks are a type of security that gives stockholders a share of ownership in a company. Stocks also are called equities or shares. Companies issue stock to raise money for various things.
Stocks offer investors the greatest potential for growth (capital appreciation) in the long term. Investors willing to stick with stocks over long periods of time, say 15 years, generally have been rewarded with strong, positive returns. If you are young and saving for a long-term goal such as retirement, you may want to hold more stocks than bonds. Investors nearing or in retirement may want to hold more bonds than stocks.
Brokers buy and sell shares for customers for a fee, known as a commission. Some companies allow you to buy or sell their stock directly through them without using a broker. To avoid fraud invest in public companies listed in Securities Exchanges.
- Cash Equivalents.
Cash equivalents are financial investments that are considered as good as cash. These are savings accounts or money market funds. The investments are liquid but have low returns.
Money Market Fund:
A money market fund is a mutual fund that invests solely in cash and cash equivalent securities, which are also called money market instruments. These vehicles are very liquid short-term investments with high credit quality. Money market funds are intended to offer investors high liquidity with a very low level of risk.
- Pooled Investment Vehicles.
Multiple investors often pool their money to gain certain advantages they would not have as individual investors; this is known as a pooled investment vehicle and can take the form of mutual funds, pension funds, private funds, unit investment trusts (UITs), and hedge funds.
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce income for the fund’s investors.
There are different types of mutual funds that are worth looking into such as Index Funds, Exchange Traded Funds (ETFs), Fixed Income Funds among others.
In conclusion, there are very many ways in which you can make your money generate more money for you. Find one that works for you and start earning passive income.