Predictable Snowball is all about building a diversified passive income stream that one day will enable true financial freedom. Financial freedom is not retiring, in fact the concept of retirement seems ridiculous to me, but instead being able to do whatever I want, whenever I want. That’s true freedom. Passive income comes in many forms, but I choose to focus on three primary forms that I believe provide sufficient diversification and most importantly, substantial cash flow.
The first, and somewhat primary, method I use is low-cost index fund investing. Low cost index fund investing is generally appropriate for any investor and somewhat straightforward once you understand the basic principles. This method may not provide the highest yield (cash flow), but it’s certainly the best in terms of diversification. By investing in large indexes (like the S&P 500) you can achieve very broad diversification, a respectable yield (generally in the low 2%’s) and capital appreciation that has averaged 9% over the last 25 years. Plus, most of us will have to utilize ETF’s and/or Mutual Funds as part of any corporate 401K plan, so understanding and leveraging this investment vehicle is necessary to overall success.
The second form of passive income I pursue is dividend growth investing (DGI). DGI is a very effective and reliable way to build steady passive income that is delivered each and every month in the form of dividends. I love that a company will pay me a steady yield (cash flow) just for being a shareholder and investing my money with them. When you add on top of that dividend reinvestment and compounding growth, the income stream from DGI can be substantial. DGI is a very special from a cash flow generation because you can “double-dip” with both capital appreciation and dividends.
The third avenue of passive income is real estate and specifically, investing in rental properties. Investing in real estate is a phenomenal way to build both wealth and monthly cash flow and just like DGI – you can “double-dip” with both property appreciation and monthly rent. Just like any investment, real estate can contain some risks and certainly is a lot of work, but if done correctly it can be an extremely effective way to develop a very steady passive income stream. I am particularly fond of real estate because of the direct control I have over the investment. Unlike when I’m investing in ETFs, mutual funds or individual stocks where it’s very difficult for me individually to increase the value of company no matter what I do (even if I buy all their products/services), but if I remodel the bathroom or install hardwood floors in a rental property, I can immediately increase the value of the property. I love the fleeing of real sweat equity.
Don’t get me wrong – I love almost all types of passive income and I hope one day to add to this list, but for now this is what I have, so I’ll continue to build that snowball!