Investing in dividend producing assets such as stocks and index funds will not only diversify your investment portfolio, but it will also provide you a passive income!
A dividend is nothing more than a distribution of a company’s earnings to its shareholders. Dividends can be paid out monthly, quarterly, or yearly in most cases.
Some stocks/funds pay out handsome dividends and others are lackluster, but generally speaking, dividends will pay out anywhere between 2-4%. Anything higher could be considered risky, so be aware of that.
To find out the stocks/funds dividend yield, simply look at the stocks/funds information online and you will see it listed. I like using Google Finance for looking up stocks/funds because it makes it so easy to find this information. You can see the dividend yield on the right-hand side of the screen. Piece of cake!
If you invested a hefty sum of money into a variety of dividend paying funds (this is what I do), then you can expect to develop a passive income! If you invested $1 million into a variety of dividend paying funds, then you could expect to earn around $40,000 a year PASSIVELY without ever touching the principal. That is right, you would do NOTHING but sit back and collect a check. Add this onto other passive income streams, and you could be financially independent in no time!
So, be sure you are diversifying into stocks/funds that pay dividends as this will help build your passive income arm of your overall investment portfolio!