How to Make $500 a Month in Passive Income

Generating monthly income all depends on having the right investment portfolio. You can produce $500 a month in passive income through investment vehicles like savings accounts, certificates of deposit, stocks, bonds and funds. Each offers varying rates of return, degrees of safety, convenience and liquidity. To get started, a significant initial investment is required to generate the amount of passive income you want to make each month. If you are interested in growing your wealth, this is how to make $500 a month in passive income.

Ask a financial advisor about the best strategies to improve your investment portfolio.

How to Make $500 a Month in Passive Income

Passive income generally refers to money you receive automatically without having to do anything, such as work for wages. The most common way to make passive income is to purchase investments that pay interest or dividends. This does not require much effort on your part; once you have invested your money, you can cash checks or receive deposits to your bank account without any intervention on your part.

When determining how to make $500 a month in passive income, consider these types of investments.

1. Savings Account

A savings account from a bank or credit union is a passive investment that’s also extremely safe, given its FDIC insurance protection. It can also be fairly lucrative; the best high-yield savings accounts yield above 4% on your investment.

The math: If you invest $150,000 in a savings account with a 4% interest rate, you could earn a total of $6,000 (or $500 a month) in interest by the end of your first year.

2. Certificates of Deposit

Certificates of deposit (CDs) tend to pay better than savings accounts, but you will not enjoy the same access to your funds. If you do not need to access your funds for a while, a CD could be a great way to earn passive income.

The math: The best CD rates for a one-year bank certificate of deposit yield about 4% annually. With a $149,894 investment at a 4% interest rate, you could receive about $500 a month in passive income by the end of the year.

3. Bonds

Corporate bonds are riskier than bank deposits, but AAA-rated bonds are generally considered safe and historically yield a little over 4%.

The math: If you buy $125,000 worth of AA-rated bonds, you can expect to receive the equivalent of $500 a month. That usually comes in quarterly, semi-annual or annual payments.

4. Dividend-Paying Stocks

Shares of public companies that split profits with shareholders by paying cash dividends yield between 2% and 6% a year.

The math: Putting $250,000 into low-yielding dividend stocks or $83,333 into high-yielding shares will get you $500 a month. However, most dividends are paid quarterly, semi-annually or annually.

5. Diversified Securities Portfolio

A man calculating how to make $500 a month in passive income.

A diversified securities portfolio of 60% stocks and 40% bonds has returned about 6.9% annually on average for the last decade, according to Vanguard.

The math: If future performance matches past performance, which is not guaranteed, $86,956 invested in a well-chosen 60/40 portfolio could grow by about $6,000 a year.

6. Exchange-Traded Funds

Low in cost and easy to buy, passively managed exchange-traded funds (ETFs) produce returns that vary according to whether they track stock, bond or other indexes.

The math: To cite one example, Vanguard’s High Dividend Yield ETF has had approximately 3% historical yields. You would need to invest approximately $167,000 to get $500 a month in passive income from this ETF.

7. Real Estate

Purchasing shares of a real estate investment trust (REIT) is one popular way to get passive income from real estate.

The math: Publicly-traded REITS pay dividends at an average rate of about 4%, so you would need $150,000 to produce $500 in monthly passive income this way.

Other income opportunities that are somewhat less passive can also provide regular monthly income with varying amounts of effort. Dropshipping, for example, is a business model that uses an online store to take orders for products. Those orders then pass directly to a supplier for fulfillment so you do not have to do a thing except accept payment.

Direct investments in real estate, such as buying rental properties, can generate income that the Internal Revenue Service (IRS) considers passive income, entitling it to more favorable tax treatment than earned income from working.

However, managing residential real estate can involve considerable effort and attention on your part unless you pay a management company to take care of leasing, repairs and other tasks.

8. Peer-to-Peer Lending

With peer-to-peer (P2P) lending, you can loan money to individuals or small businesses through online platforms. In return, you earn interest. Returns can range from 5% to 10% or more, depending on the borrower.

Payments are made monthly and include both interest and principal. This makes peer-to-peer loans a viable option when you want to earn regular income without owning traditional investments.

However, keep in mind that P2P lending is less liquid than other options, and there is always the risk that some borrowers will not pay you back. Spreading your money across many loans can help lower this risk.

The math: To make $500 a month or $6,000 a year, you would need to invest about $60,000 at 10% or $120,000 at 5%. The more interest you earn, the less money you need to invest.

Tips for Investing for Passive Income

Investing for passive income is a strategic way to build wealth over time without the need for active involvement. These tips can help you get started generating passive income through investments.

Diversify your portfolio: Diversification is key to minimizing risk and maximizing returns. By spreading your investments across different asset classes, such as stocks, bonds and real estate, you can protect your portfolio from market volatility. This approach ensures that if one investment underperforms, others may compensate for the loss.
Invest in dividend stocks: Dividend stocks provide regular income through payouts from company profits. Look for companies with a strong history of paying dividends and a stable financial outlook. This strategy not only offers passive income but also potential capital appreciation over time.
Consider real estate investments: Real estate can be a lucrative source of passive income through rental properties or Real Estate Investment Trusts (REITs). When you invest in rental properties, you can generate monthly income. Meanwhile, REITs offer a more hands-off approach by investing in a diversified portfolio of real estate assets.
Explore index funds and ETFs: Index funds and exchange-traded funds (ETFs) offer a low-cost way to invest in a broad market index. These funds provide diversification and are managed passively, making them an ideal choice for investors seeking steady, long-term growth with minimal effort.

By following these tips, you can effectively invest for passive income and work towards achieving financial independence.

Bottom Line

A woman reviews how to make $500 a month in passive income.

To generate $500 a month in passive income, you may need to invest at least $60,000, depending on the asset, investment type and current interest rates. In addition to yield, you’ll want to consider safety, liquidity and convenience when selecting the investments you’ll employ to provide monthly passive income. However, once you’ve made the decision of where to put your money, you can expect to receive regular payments without much, if any, additional future effort.

Tips for Investing

Financial advisors help investors analyze various investment options and can help create a plan of action to meet their goals. Before investing in any passive income investments, consider talking with an advisor to understand how it fits within your portfolio. 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.
When investing your money, it is important to diversify your assets among many different types of stocks and bonds. This helps you gain exposure to multiple sectors of the market and benefit from their growth. Our asset allocation calculator helps you select a profile that’s right for you based on your answers to simple questions.