How to make money while you sleep

Sound too good to be true? Read on to discover how you can earn great money by doing very, very little.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Want a relatively fuss-free way of dramatically increasing your wealth with minimal effort? No problem. In contrast to what some in the financial world will tell you, making money from investing can be devilishly simple. You can even earn while you sleep.

Get efficient

The first step isn’t exactly revelatory.

At the Fool, we’re continually banging on about the benefits of holding all your investments in a tax-efficient account such as a stocks and shares ISA. Not only does this protect any profits you make from income and capital gains tax, you always have access to that capital should you need it. Right now, you can invest up to £20,000 in a single year. Taking as much advantage of this allowance now can pay off over the long term.

For those that already have an ISA or are confident they won’t require access to their capital for many years, there is another option. Enter the SIPP — or Self-Invested Personal Pension. 

SIPPs are an ideal, low-cost solution for those wanting to invest for the long term. In addition to being exempt from capital gains and income tax, you get tax relief on any contributions you make at your marginal rate. So, someone making an annual contribution of, say, £800 will receive an extra £200, based on a 20% marginal rate of tax. Higher rate taxpayers get an even better deal. To end up with £1000 in their pension pot, they need only contribute £600.

The benefits don’t stop there. Having a SIPP allows you complete control of your money and the opportunity to invest in a far greater range of assets than your typical mainstream pension plans. As well as being able to transfer in an existing pension, a SIPP also permits new contributions of up to £40,000 a year.

Receive, reinvest, repeat

Having set up and begun contributing to a SIPP or an ISA, you can begin generating a second stream of cash by investing in a decent-sized and sufficiently diversified basket of income-generating shares.

The beauty of adopting a dividend-focused strategy to investing is that you get paid while you’re busy getting on with life. As a part-owner of a business, you receive your share of profits that it makes regardless of whether you’re playing your favourite sport, having a coffee with friends or tucked up, counting sheep under a duvet. It’s the very definition of passive income.

As a dividend investor, there’s also no shortage of resilient, cash-generative businesses out there to buy. Oil giant Royal Dutch Shell hasn’t cut its payouts since the Second World War. Right now, its shares yield just shy of 6% — well over four times greater than the interest rate offered on the best cash savings account. Holders of stocks in power provider National Grid will get 6.3% based on its current share price; owners of Lloyds Bank will receive a forecast 6.8% this year.

Regardless of which investments you pick, the only thing you need to do in order to benefit from the beauty of compounding is reinvest what you receive back into the market. Given that you can only access your benefits (and withdraw 25% of your fund tax-free) from the age of 55, this is arguably much easier to do with a SIPP. Investing with an ISA will require a little more willpower.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »

Growth Shares

This UK stock could be like buying Nvidia in 2021

Jon Smith thinks he's missed the boat with Nvidia shares, but flags up a UK stock that has some very…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The FTSE 100’s Intertek delivers a bullish update — can the share price soar?

I’d describe Intertek as a quality business with a decent dividend income, but will the share price shoot the lights…

Read more »

Market Movers

Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for…

Read more »

Investing For Beginners

Down 43% in a year, I think this value stock is primed for a comeback

Jon Smith flags up why a FTSE 250 share has fallen so much in the recent past, but explains why…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Nvidia stock is stupidly expensive. Or is it?

Nvidia stock's up over 2,000% in the past five years. Christopher Ruane explains why it could be wildly overvalued --…

Read more »