Right now, everyone is looking for ways to generate passive income. This is understandable as this form of earnings can boost one’s cash flow and financial stability.
Here, I’m going to highlight three investment ideas for those seeking passive income today. All of these strategies are quite simple and can be started with just a few hundred pounds.
Income funds
First up, we have income funds. These are investment funds that are designed to provide investors with a high level of income.
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The beauty of these products is that they offer exposure to a whole range of companies, therefore providing instant diversification. They’re also low-hassle investments.
One fund that’s worth highlighting here is the Vanguard FTSE UK Equity Income Index. This is a low-cost passive fund that provides exposure to a range of high-yielding dividend stocks including BP, Rio Tinto, and National Grid. Currently, it offers a yield of around 5.1%.
I’ll point out that there are many other investment funds that, over the long term, are likely to provide higher total returns (capital gains and income) than this particular fund. From an income-generation perspective, however, I think it has a lot of appeal as the yield is high.
Investment trusts
Next, we have investment trusts. These are similar to funds, however, they are listed on the stock market, meaning they can be bought and sold just like regular stocks.
In the UK, there are a number of investment trusts that have a focus on income. One example here is the Murray Income Trust (LSE: MUT). Founded in 1923, it aims to provide investors with a high and growing level of income as well as some capital growth.
There’s a lot to like about this product, to my mind. For starters, it has a healthy yield of around 4.3% at present.
Secondly, it has a fabulous track record when it comes to dividend growth. Believe it or not, it has lifted its payout every year for nearly 50 consecutive years now.
Third, it has a good long-term performance track record. For the five-year period to the end of April, for example, its share price rose 41% versus 24% for the FTSE All-Share index.
It’s worth pointing out that this trust doesn’t outperform the market all the time. Last year, for example, its performance was a little underwhelming.
Overall though, I see it as a great play for income.
High-yield dividend shares
Finally, a third idea to consider is investing in high-yield dividend shares directly.
The main advantage of this approach to investing is that it’s possible to seek out companies with very attractive yields. For example, one could potentially invest in Legal & General Group, which currently has a yield of around 8.5%. This means a £1,000 investment could generate annual passive income of around £85.
Another advantage of this approach is that one has a lot of flexibility. Want to avoid oil stocks or tobacco stocks? That’s easily done.
The downside to this approach is that stock prices tend to be more volatile than fund and trust prices.
However, by owning a number of different stocks from different industries, an investor can lower their overall risk levels dramatically and set up a healthy income stream.
