According to the 2020 Road to Retirement Survey by TD Ameritrade, nearly 1 in 10 Americans in their 60s and 70s had over $1 million in savings by the end of 2019. Fast-forward to March 2021 –namely, during lockdown– and Americans had saved up to $1.6 trillion, which is more than half of the $2.9 trillion saved by consumers around the globe, as reported by Business Insider.

These statistics only go to show how preoccupied they can be with their retirement plans, and how passive income can be a solid strategy as the Covid mayhem subsides.

Ways to earn passive income

Passive income brings money in without the investor having to do anything. Many investors think of real estate when they think about passive income, but owning rental property isn't the only way to earn passive income.

Some other options include dividend stocks and passive income funds that pay dividends regularly. For many investors, the problem with real estate is that it isn't a fully passive option for income. Owning rental property does require some involvement on the investor's part, although it can be minimized by hiring a property manager.

However, dividend stocks and passive income funds are truly passive income vehicles. Many passive income funds even offer exposure to real estate without the need for any input from the investor. Here's why passive income funds should be a part of every portfolio

They add to your income without any extra work

The first reason is self explanatory for why passive income of any kind is important. Having a steady stream of income that you didn't have to do much of anything to earn increases your financial security while enabling you to save more money. It's never good to live paycheck to paycheck, but a passive fund will bolster your savings, enabling you to build up even more of a stockpile than you could with only your paycheck.

A passive income fund will also free up some time so that you don't have to worry about constantly working to increase your income. You'll have more time to do what you want to do because you won't be looking for extra hours to increase your income.

You'll also have greater financial freedom when you invest in a passive income fund because you'll be able to buy a house or take a vacation with the extra income you earn. Investing in a passive income fund also reduces your stress and fear of the future by giving you a little extra income.

Passive income funds are truly passive

The traditional passive income method of owning rental properties isn't truly passive because it requires you to buy a property, list it for rent, find tenants, collect rent and much more. Hiring a property manager makes owning rental property virtually passive, but they tend to charge high fees due to the volume of work they take on.

However, a passive income fund enables you to invest in real estate in a truly passive way. You simply collect the distribution payments each quarter, and the fund does the rest. There are no legal headaches associated with owning rental property, like the possibility of having to evict problem tenants.

Passive income funds are diversified

One of the biggest benefits of passive income funds is the fact that they offer a diversified way to earn passive income. One example of a passive income fund is the Yieldstreet Prism Fund, which was introduced in March 2020 as a multi-asset closed-end fund with quarterly distributions.

The closed-end fund contains a blended portfolio of asset classes and cash, giving investors exposure to multiple alternative asset classes with a single investment. Real estate is just one part of the fund, so investors enjoy a diversification benefit within their passive portfolio, which you don't get when investing in real estate alone.

Minimum investments are lower with some passive funds

Another problem many investors have with owning rental properties is the fact that the minimum investment required to get into the business is quite high. Many investors even take out debt to finance their investments, but it's not usually a good idea to do that.

Passive income funds can offer a low-cost way to earn a passive income with a smaller minimum investment. Not all passive income funds have the same required minimum, but some are as low as $500. With a little bit of shopping around, you can find a passive income fund that has a low minimum investment, enabling you not only to earn a passive income but also to do so in a diversified manner, even if you don't have piles of money to invest upfront.

You can watch your investment grow steadily

Finally, with many passive income funds, you can choose to receive your distributions in one of two ways. If you prefer, you can take the money as cash every quarter, but to make the most out of your investment, you may want to set up a dividend reinvestment program (DRIP).

When you use a DRIP instead of taking the money as cash, you grow your investment steadily. Many investors find that reinvesting their dividends increases their returns even more than if they had taken their distributions in cash.

Passive income funds are an excellent way to collect a steady income without having to do anything to earn it. They offer a diversified way to grow your income and should be a part of every investor's portfolio.

Coronavirus