3 simple passive income ideas for 2023

It’s not hard to generate passive income these days. Here’s a look at three very simple strategies that are based around investing.

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.

Mature people enjoying time together during road trip

Image source: Getty Images

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.

Right now, everyone is looking for ways to generate some passive income. This makes sense. Who wouldn’t want a little more income in today’s inflationary environment?

Here, I’m going to highlight three simple investing-based passive income ideas for 2023. All three strategies are super easy to set up and can potentially be started with just a few hundred pounds.

Equity income funds

One really easy way to generate some extra cash flow is to invest in equity income funds. These aim to provide investors with both long-term capital gains and income – a winning combination when it comes to building wealth.

On investment platforms such as Hargreaves Lansdown and AJ Bell, there are many equity income funds to choose from. Most tend to offer yields of around 3%-4%. However, there are some products that offer much higher yields.

One fund I’m considering for my portfolio right now is the FTF Martin Currie UK Rising Dividends (the income version). This fund — which aims to provide investors with rising income over time — doesn’t have the highest yield (it’s just under 3% currently). But it has produced very solid total returns (capital gains plus income) over the long term. Past performance is not an indicator of future performance though.

It’s worth pointing out that on Hargreaves Lansdown, one can start investing in funds with just £100.

Investment trusts

Another simple way to generate passive income is to invest in income-focused investment trusts. These products are similar to equity income funds, however, they are listed on the stock market and trade like shares do. So, one typically needs to pay trading commissions to buy and sell them.

One trust I’m considering for my portfolio is the Murray Income Trust. This has a great track record when it comes to rewarding investors with income. Indeed, it’s classified as a ‘dividend hero’ meaning it has increased its income payout every year for over 20 years. The yield is currently a little over 4%.

Another one I’m looking at is Merchants Trust. It’s also a dividend hero. It has a yield of nearly 5% at present.

Dividend stocks

Finally, we have dividend stocks. These are stocks that pay out a proportion of company earnings to shareholders, in cash, on a regular basis.

Investing in dividend stocks is a little riskier than investing in funds and trusts. That’s because stock prices tend to be more volatile than fund and trust prices.

However, on the flip side, there are higher rewards on offer. For example, on the London Stock Exchange, there are many dividend stocks that offer yields of 6% and higher at the moment.

One stock I’ve got my eye on right now is Legal & General Group. It currently sports a yield of around 7.5%, meaning a £1,000 investment could potentially generate income of around £75 per year for me.

Of course, with this strategy, it’s essential to manage risk. The best way to do this is to own a number of different stocks from different industries.

By taking a diversified approach, investors can lower their portfolio risk dramatically and put themselves in a good position to generate solid long-term returns.

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.

Edward Sheldon has positions in Hargreaves Lansdown Plc. The Motley Fool UK has recommended Hargreaves Lansdown Plc. 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

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Nvidia stock is becoming more affordable!

Nvidia stock is up 2,500% over five years, but the chip giant’s share split -- announced during its earnings report…

Read more »

Investing Articles

Are Rolls-Royce shares good for passive income?

Our writer is getting mixed messages about the Rolls-Royce dividend. But whatever happens, he thinks passive income hunters will be…

Read more »

Investing Articles

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »

Satellite on planet background
Investing Articles

At just under £14, can BAE Systems’ share price still be a prime FTSE 100 bargain? 

Despite its bullish price run, BAE Systems’ share price still looks undervalued to me and appears set for strong growth.

Read more »

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »