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Passive income investments for Canadian investors

Find out about passive income investments that can help you make money even while you sleep.

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Businesswoman working from home earning passive income

Passive income investments can take a chunk of money upfront and a bit of attention early on. But after a while, your money can make money without you doing anything. Find out how to use dividends from stocks, peer-to-peer lending and rental property to build a bigger balance.

if you have upfront capital, you could potentially earn money through dividends from stocks, peer-to-peer lending and real estate.

Dividends from stock

When you buy stock in a company, you own a portion of that company and are entitled to a share of its profits. When the company’s stock price increases, the value of your “shares” of stock also rises in value

Another way to earn consistent money from shares is if the company pays dividends. Some companies pay dividends, or a portion of the company’s profits, to shareholder throughout the year.

And you’re not tied to investing exclusively in Canadian companies. If you open an account with one of the many online stock trading platforms on offer, you can trade stocks not only on the Canadian market, but on major stock exchanges worldwide.

But investments in stocks come with risks. You won’t always make money from these investments — values can be volatile and can rise or fall based on news, trends and market conditions.

Compare online stock trading platforms

Name Product Available asset types Stock Fee Option Fee Account Fee ETF Transaction Cost
Questrade
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, International Equities, IPOs, Precious Metals
$4.95 - $9.95
$9.95 + $1 per contract
$0
Free
Opt for self-directed investing and save on fees or get a pre-built portfolio and take some of the guesswork out.
Interactive Brokers
Stocks, Bonds, Options, Mutual Funds, ETFs, Currencies, Futures, Precious Metals
Min. $1.00, Max. 0.5% of trade value
$1.50 min. per order
$0 (if monthly commissions are equal to or greater than US$10.00)
Min. $1.00, Max. 0.5% of trade value
Access market data 24 hours a day, six days a week and invest in global stocks, options, futures, currencies, bonds and funds from one single account.
Wealthsimple Trade
Stocks, ETFs
$0
N/A
$0
Free
Buy and sell thousands of US and Canadian stocks and ETFs commission-free with Wealthsimple Trade.
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Compare up to 4 providers

What are the pros and cons of investing in shares?

Pros

  • Capital gain. Investing in shares allows you to take advantage of capital gains from the growth in a company’s stock price.
  • Income. If you buy shares in companies that regularly pay dividends, these can provide an ongoing source of income.
  • Global markets. Because you can buy and sell stocks on exchanges all around the world, you can ensure that your money is working as hard as possible.
  • Convenient. With so many trading platforms, buy into companies on your time with online electronic transfers.

Cons

  • Risk losing your investment. The money you make in your investment is tied to the success of a company. This makes this investment a risky one.
  • Prices fluctuate. Stock prices fluctuate with the market, so you could lose money overnight.
  • Dividends may come and go. A company may decide to stop paying dividends if it starts losing money or sees a drop in profits.

Peer-to-peer lending

If you have the upfront money to lend, you could see a return on your investment through interest rates. People are looking to borrow money using peer-to-peer lending services for things like starting a business.

Borrowers on a peer-to-peer lending platform are often looking for a lower price than they can qualify for with a bank or credit union. Lenders with the capital to invest, set an interest rate and terms. Online platforms match lenders with borrowers, and you’ll see a return on your investment over time as you’re paid back.

However, lenders risk losing if the borrower defaults on their loan. Without collateral, you lose your investment if the borrower can’t repay.

What are the pros and cons of peer-to-peer lending?

Pros

  • Interest rates. The interest rates on peer-to-peer loans are typically higher than on savings accounts and term deposits.
  • Diversification. Peer-to-peer lending offers a unique opportunity if you’re looking to diversify your investments, plus minimize risk by spreading your funds across a number of loans.

Cons

  • Risk vs. reward. While peer-to-peer lending provides the potential for high returns, there’s also the risk that the borrower could default. Unlike savings accounts and term deposits, the money you invest in peer-to-peer lending isn’t covered through the Canada Deposit Insurance Corporation (CDIC).
  • Defaults and fees. Check with the peer-to-peer lending service to find out what happens if the borrower defaults on the loan. Also, find out how the interest rate is set, its fees and the process if the platform operator goes broke.

Rental property

If you own property you don’t use, renting can generate an ongoing source of income. The amount you can charge a tenant depends on the condition of the building, the size and location. Investing in rental property does take some work and money to maintain, but hiring an experienced property manager can make this a hands-free investment.

Even without an investment property, accommodation-sharing services like Airbnb make it possible to rent out your own home while you’re away. You could even rent a parking space or office space that you’re not using, which can provide a steady source of extra income with minimal effort.

Pros and cons of renting out a property

Pros

  • Earn money from something you don’t use. Got a spare room or parking space you don’t use? Rent it out and start making money.
  • Capital gains. If you own an investment property, not only can you benefit from ongoing rental income but you can take advantage of long-term capital gains.
  • Long-term security. The ongoing returns provided by renting out a property can provide money for your rainy-day fund or act as an extra source of income.

Cons

  • Property damage. Tenants can ruin your investment by damaging or misusing your property. Big repair bills can drain your investments.
  • Property management costs. Whether you manage the property yourself or hire a property manager, factor these costs into your budget.

Take a look at our investment property mortgage guide

Bottom line

Passive investments can be a way to earn money without a lot of daily action. But like other investments, they comes with varying degree of risk and startup capital to consider. Weigh the potential gains against the risks, especially when getting started with rental properties and peer-to-peer lending. To make smart investment choices, research various investments and strategies to protect your growing nest egg.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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