Investment Strategies for Making $100,000 Per Year in Passive Income

The journey towards financial freedom and independence often involves passive income, which can be a primary component in long-term wealth creation. Passive income refers to earnings that are generated with little or no effort on the part of the recipient. Working towards $100,000 per year in passive income may be achievable by strategically investing in diverse income streams, such as rental properties, dividend stocks and fixed-income securities. While these investments can help build wealth, there are potential risks associated with passive income, such as market volatility and income fluctuations.

Do you have questions about passive investing? Consider consulting with a financial advisor today.

Ways to Make $100,000 Per Year in Passive Income

When selecting different passive income streams, consider factors such as risk, initial investment and your return on investment (ROI). Combining various passive income sources can help you work towards your financial goal of $100,000 per year without having to trade all of your time to achieve that goal. Below are five common ways or investment types you can use to pursue that goal.

1. Invest in Real Estate

Rental real estate is a proven source of passive income, but how passive it really is depends on your involvement. Rental properties generate cash flow through tenant payments, typically on a monthly basis. While you can earn steady income, property management, repairs and tenant turnover can require ongoing effort. Hiring a property manager can reduce your involvement, but also cuts into your profit margin.

Assuming an average net rental yield of 6% (after expenses such as taxes, insurance, repairs and management), you would need to invest approximately $1.67 million in rental properties to generate $100,000 per year in passive income.

For example, say you own a property valued at $350,000. It generates $1,000 per month in net income after costs. Your total annual income would be $12,000. You would need roughly eight to ten such properties to hit the $100,000 mark. A financial advisor can help you determine the role a real estate investment might play in your portfolio.

Alternatively, you can invest in real estate investment trusts (REITs) for hands-off real estate exposure. With an average dividend yield of around 4.5%, you’d need to invest approximately $2.22 million in REITs to earn $100,000 annually.

2. CD Laddering

Certificates of deposit (CDs) are low-risk, fixed-income investments that pay a guaranteed interest rate over a set period. With CD laddering, you stagger investments across multiple CDs with varying maturities, allowing for both liquidity and competitive yields.

In today’s interest rate environment, longer-term CDs might offer rates around 5%. To generate $100,000 per year in passive income, you would need to invest approximately $2 million in a CD ladder yielding 5%.

A CD ladder built with five CDs — each $400,000 with staggered terms from 1 to 5 years — would produce $100,000 annually if the average rate is 5%. As each CD matures, you’d reinvest the proceeds into a new 5-year CD to maintain the ladder and income stream.

Keep in mind that CD rates fluctuate with the market, and your income may vary over time.

3. Dividend Stocks

An investor calculates how to make $100,000 per year in passive income.

Dividend-paying stocks can provide consistent income. Particularly when invested in well-established companies with a track record of steady or growing payouts. These stocks also offer potential capital appreciation, though they come with market risk.

Assuming an average dividend yield of 4%, you would need to invest $2.5 million to generate $100,000 in annual dividend income.

A diversified dividend portfolio including companies like Johnson & Johnson, Procter & Gamble, and utilities or dividend-focused ETFs (like VYM or SCHD) could deliver yields between 3.5% and 5%. A $2.5 million portfolio with a 4% yield would produce exactly $100,000 annually, not accounting for dividend growth over time.

Dividend reinvestment and growth can compound returns significantly if you don’t need the income immediately.

4. Fixed-Income Securities

Fixed-income investments, such as Treasury bonds, corporate bonds and municipal bonds, offer regular interest payments, making them ideal for generating passive income. While returns tend to be lower than equities, they provide more predictability and less volatility.

Assuming a blended yield of 4.5% across a diversified bond portfolio, you would need about $2.22 million invested to earn $100,000 per year.

A fixed-income portfolio could include:

40% in Treasury bonds yielding 4%
40% in investment-grade corporate bonds yielding 5%
20% in municipal bonds with a tax-equivalent yield of 4.5%

This diversified mix would average around 4.5%, providing steady annual income. Bond funds or ETFs like BND (Vanguard Total Bond Market ETF) can also simplify access to this type of income.

5. Start a Side Hustle

Some side hustles can become true sources of passive income once the initial setup is complete. Examples include:

Creating an online course
Writing and self-publishing a book
Building a niche website with affiliate income
Licensing photography or music
Launching a mobile app

Unlike traditional investments, side hustles don’t require capital in the same way. But they often demand time, expertise and upfront effort instead.

For example, say you create a digital course and sell it for $100. You would need to sell 1,000 copies per year to earn $100,000. If your course is hosted on a platform that takes a 30% commission, you’d need to gross about $143,000 in annual sales. Once created and marketed effectively, a well-targeted course can continue earning income with minimal ongoing involvement.

While less predictable, successful side hustles can offer much higher returns on time and capital invested — especially for creative or entrepreneurial individuals.

Understanding Passive Income

Passive income pertains to earnings generated regularly, with little to no effort needed from the recipient. Active income, on the other hand, involves earnings derived from an individual’s direct effort or labor, such as the salary earned from a full-time job. You can think of active income as trading your time directly for money, while passive income is earned no matter what you’re doing.

Examples of active income sources include hourly wages, commissions and freelance work. Passive income sources may include rental properties, dividends from stocks or royalties from intellectual property. Passive income can also be earned through side hustles or businesses that you’re able to build to drive revenue without you directly working. In this article, though, we’re primarily focused on passive income investments.

Importance of Income Diversification

Multiple income streams offer several benefits, such as spreading risk, increasing earning potential and reducing reliance on a single income source. An income stream serves as a regular source of earnings, helping individuals and families meet their financial needs. Individuals can have multiple income streams from a variety of different sources.

By reducing reliance on a single income source, such as a full-time job, one can protect their finances against challenges and ensure more long-term financial stability. If you happen to lose your only income stream, then it can damage your financial outlook. However, if you lose one of many income sources, then you might have more flexibility to adapt.

For example, consider an individual who loses their job unexpectedly. If they have diversified their income with investments in rental properties, dividend stocks and a side hustle, they will be better able to withstand the loss of their primary income source. Consulting a financial advisor for personalized advice on income diversification strategies can be a wise move for those seeking to diversify their income as it won’t be the same for everyone.

How to Create an Investment Plan for Passive Income

It’s essential to assess your risk tolerance to determine the suitable proportion of high-risk and lower-risk assets in your investment portfolio. Setting short and long-term financial goals involves identifying the desired passive income amount and the timeline needed to achieve it.

Accumulating an emergency fund is an example of a short-term goal, while a long-term goal could be reaching $100,000 in annual passive income. Evaluating investment options requires researching and understanding expected returns, risks and diversification opportunities. Periodic review of financial success and tuning the strategy allows you to reassess goals, progress and risks in a disciplined manner.

Consulting a financial advisor when creating an investment plan tailored to your personal financial goals and risk tolerance can be both beneficial and crucial to finding the right income diversification. Based on your goals and the amount of money you have to invest, your plan could look dramatically different.

Bottom Line

The path to working towards $100,000 per year in passive income takes time, discipline and consistent effort. Building diverse income streams is essential for achieving financial freedom and independence. By spreading your sources of income over multiple investments and avenues, you are better prepared to weather financial challenges and achieve long-term wealth.

Tips for Investors

A financial advisor can help you create a passive investing plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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