How to create Passive Income using the tool of Diversification?

How to create Passive Income using the tool of Diversification?
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Knowing How to create Passive income is the need of the hour in the state of the economy we live in today and using diversification as a tool that helps minimize the risk from an investment is certainly a boon. To better understand this let’s understand the context of Passive Income, it is a wide spectrum under which comes a lot of areas such as Affiliate Marketing, Multi-level Marketing, Content Creation, Writing a book. As you read through the names of these options to create passive income, you will realize that they either require a good amount of time or a particular skill-set which a person may or may not already have which will also lead you to first learning that skill. Sounds like a lot of work, doesn’t it? But, there is a way to earn Passive Income without much of your time or effort, which is just by managing your wealth which is mostly left idle or is currently not at its full potential.   

The more a person diversifies his/her income, the more he/she realizes what a huge blessing it is to have the opportunity to do this. It gives the autonomy to do experiments with the funds, try new feasible and viable opportunities, invest in new ideas as there is an assurance that in case this experiment doesn’t give a positive result, the person still has other sources of income which will cover for my expenses and other needs. Your money has limitless potential of multiplying itself. It may take a while to completely understand about the market, but once you are aware of everything, getting a positive cash flow at regular intervals is going to be a cakewalk. 

It is said that the average millionaire has 7 different streams of income. Ever tried assessing yourself as to where you stand compared to this? If you’re not even near this race, then why not? What is stopping you from taking the necessary actions to generate passive income in your life? 

Here are a few points to get started.

  1. Major focus should not be shifted from your Active Income source

It is noticed that many times people put a lot of their time and energy to think or develop about their options and ways to create passive income that it starts affecting their active income. One must remember that the whole point of having a source of passive income is that A.One doesn’t need to put time or efforts into that, B. So that they can totally focus on following their passion while not having to worry about money affairs as that is covered by their passive income. 

  1. Real Estate and its several diversification 

One of the most common asset classes is Real Estate and as simple as it may sound owning a property and earning from it, it is actually very complex if you want to make the most out of it. Instead of owning large properties of one type, say residential or corporate, one can diversify in this too and own some rental property as well as some crowdfunded real estate. Crowdfunded real estate is a new concept in India but is one good option to minimise risk of totally bearing any kind of loss.

  1. Diversified Stock Portfolio

One needs to understand that owning stocks from only one company or say different companies from the same industry is highly risky as it may bring huge losses in case that company or industry is going through a rough patch. One must own stocks from several industries starting from hardware to pharmaceuticals to automobiles to energy companies. It helps to reduce the risk of losing all your money altogether. One smart way to invest in stocks is to invest in Index funds which is also based on the concept of Diversification. It is like you are investing your money in one of the best performing assets without even doing much research about it. Indexes like the Nifty 500 help you to invest in 500 stocks in 1 go. God bless diversification and indices.

  1. Keep a good amount (enough to help you survive a crisis) in secure assets like cash equivalents & Gold 

Tough times like the current one (Covid19 Pandemic) is a lesson to all of us that we should have a good amount of our wealth put in secure assets such as Gold and Cash Equivalents(Like Liquid Funds, fixed deposits or savings) so that it can be used when there is a need for it. Gold is considered one of the best assets for recession or crisis periods mostly because of its inverse relations with the stock markets. On the other hand, cash equivalents can be used for various purposes such as any financial emergency or investment when a great opportunity comes up.

Therefore, Diversification is a great tool which helps us understand How to create Passive income and that too safely.

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