Warren Buffett said it simply: "If you don't find a way to make money while you sleep, you will work until you die."
What does that actually mean? If you’re only earning money from your labor, you’ll more than likely never build wealth.
That's because there’s a limit to how hard we can work and how long - eventually, you have to eat and sleep.
But your money? It can work 24/7, 365.
So, you need to own things that pay you whether you’re working or not.
That is passive income in a nut shell. Money that you earn without being directly involved.
No, you can’t get rich quick through passive income - it’s a steady process that builds over time.
But once you get your money working for you, there’s a chance that you might not have to work as much as you do now.
Below are 13 strategies that anyone can get started with to build passive income that pays you in your sleep, literally.
Here’s the thing though: Passive investing is just one type of strategy to build wealth.
Our CEO Jaspreet Singh is hosting a free live investor workshop on March 18th where he’ll be breaking down how to spot market shifts and potential opportunities.
Register for free by clicking here.
How This Works
Before we get into passive investing strategies, you need to know how you actually get paid as an investor.
There are two main ways an investment can pay you back:
The first is appreciation - the value goes up and you profit when you sell.
The second is cash flow - the investment sends money directly to your account on a schedule.
Cash flow is money while you sleep. Your portfolio pays you whether you're checking it or not.
Income investing is the strategy of building that cash flow engine.
Think of it this way: growth investing is like planting a tree and waiting to sell it for lumber.
Income investing is planting a fruit tree. It pays you every season while it keeps growing.
Let's break down 13 ways to do it.
1. Dividend Growth Stocks
These are shares in companies that have paid, and increased, their dividends for years.
The dividend - a portion of company profits paid directly to shareholders - starts modest, around 2-3%. But it grows every year.
That means you may see returns in the stock price and potentially dividends, too.
Dividend growth stocks could be any stock that has increased its dividend for at least a few years, often 5-10.
However, there are many companies that have increased their dividends for much longer.
Dividend Aristocrats are S&P 500 companies that have increased their dividend every year for at least 25 years.
Dividend Kings are companies that have increased their dividend for at least 50 years.
The bottom line: Companies that pay dividends consistently through ways, market corrections, pandemics and more, show that they’re focus is increasing shareholder value.
That’s good for the owners, or shareholders, of these companies
2. High-Yield Dividend Stocks
These are stocks with above-average yields - typically 4-5% or higher.
The goal here is maximizing income right now, not waiting for growth.
One warning: A stock yielding 10% or 12% is often a red flag.
It may mean the price has crashed, the business is struggling, or the dividend is about to get cut.
Look for high yields backed by strong cash flow, reasonable payout ratios - the percentage of earnings paid as dividends - and a stable business.
3. Dividend ETFs
An ETF or exchange traded fund is a basket of stocks you can own with just one share.
Dividend ETFs collect income from dozens or hundreds of dividend-paying companies and pass it to you automatically.
This is the easiest way for a beginner to start. If one company cuts its dividend, the impact on your total income is minimal.
4. Index Funds
An index fund tracks a broad group of companies - like the S&P 500, the 500 largest publicly traded companies in the U.S.
You're not picking individual winners. You're buying the whole market.
John Bogle, the founder of Vanguard, made it simple: "Don't look for the needle in the haystack. Just buy the haystack."
Index funds are passively managed, meaning fees are typically very low.
5. The CPA Method (How to Make Any of This Work)
This one isn't a single investment. It's the system that makes all 13 of these strategies actually work.
CPA stands for Consistent, Patient, Automated.
Consistent means you invest on a fixed schedule - every week, every two weeks, every month - no matter what the market is doing.
Patient means you're thinking in decades, not quarters. Real compounding happens over the long term.
Automated means the money moves without you having to touch it. Cash leaves your account and goes straight into your portfolio on schedule.
That last part is what makes money work for you while you sleep.
You simply build a system and let it do its thing for the long term.
6. REITs
A REIT - Real Estate Investment Trust - is a company that owns income-producing real estate.
By law, REITs must pay out at least 90% of their taxable income to shareholders as dividends.
That makes them natural income generators. They own apartment buildings, warehouses, shopping centers, data centers, cell towers, and healthcare facilities.
Investors get real estate income without buying or managing a single property. REITs also tend to offer inflation protection - rents typically rise over time.
7. REIT ETFs
Same idea as dividend ETFs, applied to real estate.
REIT ETFs give you instant exposure across dozens of REITs and property types in a single purchase.
Many also spread your risk across the full real estate market rather than betting on one property type.
That strategy = diversification, which helps lower investing risks.
8. Preferred Stocks
Preferred stocks are a special class of stock that pays dividends before common stockholders get anything.
They typically offer higher yields than regular dividend stocks - but with less potential for price appreciation.
Think of them as a middle ground between a stock and a bond.
More income than a typical dividend stock, but less upside than a growth stock.
9. MLPs
MLPs - Master Limited Partnerships - are companies, often in energy or utilities, that trade on the stock market and distribute most of their cash flow to investors.
They can offer higher yields and certain tax advantages, making them attractive for income-focused investors.
EPD (Enterprise Products Partners) is a well-known example.
It operates in energy infrastructure - pipelines, storage, processing - with long-term contracts backing steady cash flow.
10. Bonds
When you buy a bond, you're lending money to a government or corporation.
In return, they pay you interest at regular intervals. At the end of the bond's term, you get your principal back.
Bonds are considered fixed income because the payment is set from the start.
U.S. Treasury bonds, investment-grade corporate bonds, and municipal bonds - which are often tax-free - are the most common types.
When stock markets get volatile, bonds tend to hold steady. Some investors like to hold them as the foundation of their portfolio.
Other investors only invest in them to hedge against a market downturn or inflation.
Either way, bonds can pay you, which means you get money over time, without having to work more.
11. Bond Laddering
This is a strategy for investing in bonds that protects you against interest rate swings.
Instead of putting everything into one bond at one maturity date, you spread your money across bonds that mature at different times - one year, two years, three years, and so on.
When the shortest bond matures, you reinvest that cash into a new longer-term bond.
The result: you always have income coming in, and you're never fully locked into one rate environment.
12. CDs
A CD - Certificate of Deposit - is one of the most straightforward income tools available.
You deposit money at a bank for a fixed period - say, one or two years - and they pay you a guaranteed interest rate.
At the end of the term, you get your money back plus all the interest.
CDs are FDIC-insured up to $250,000 per depositor per bank. That means even if the bank fails, your money is protected.
The tradeoff is liquidity - pull your money out early and you'll typically pay a penalty.
You can also ladder CDs just like a bond: Spread deposits across multiple maturity dates so you always have money becoming available.
13. Covered Call ETFs
This one is a little more advanced - but worth knowing about.
A covered call ETF holds a portfolio of stocks and simultaneously sells options contracts on those holdings to generate extra income.
That income gets paid out to investors as distributions. JEPI (JPMorgan Equity Premium Income ETF) is a popular example.
It tends to offer higher yields than traditional dividend ETFs - though the tradeoff is that you give up some upside if the market runs significantly higher.
For investors who want more income now and are willing to cap some growth potential, these funds can be a useful addition.
What To Do With the Cash
These strategies help you earn money in your sleep - but what do you do with the cash once you have it?
Here’s a few potential options:
Reinvest it. Put the cash right back into more shares. This is the most powerful long-term move.
Over time, your money compounds, and grows faster.
Build reserves. Hold some cash so you're ready to buy when markets pull back.
Spend it. Many retirees pivot their portfolios toward income assets and live off the cash flow as a supplement to other income.
There's nothing wrong with enjoying the money your money made - that’s why money is for, after all.
The key: Start as early as you can and let your strategy do the heavy lifting.
One Risk to Keep in Mind
There's no legal requirement that forces a company to keep paying dividends.
During 2020, dozens of companies - airlines, retailers, banks - cut or suspended dividends entirely to stay afloat.
A high yield isn't always good news. Sometimes it means the stock price has crashed and the payout is about to disappear.
Always look at the business behind the income and ask:
Is cash flow steady?
Is the payout sustainable?
Is the company growing or shrinking?
Plus, bonds are not totally risk free. With corporate bonds, for instance, there’s a chance the business goes under, and isn’t able to fully pay you back.
U.S. treasury bonds are typically much safer, but the payouts are lower than what you’d typically get with a growth stock or dividend stock.
So keep these risks in mind if you are considering investing in one of the 13 strategies above.
Make Money While You Sleep: Final Thoughts
None of these strategies make you rich overnight.
They make you rich over time - because they keep working when you're not.
The goal is to be patient and stick to your strategy.
Passive income has its perks, but it is not the only investment strategy out there.
In fact, savvy investors use multiple strategies in order to build generational wealth that lasts.
Our CEO Jaspreet Singh is hosting a free live investor workshop on March 18th that breaks down how we identify market shifts and potential investment opportunities.
