Passive income can be a beautiful thing. It can be a set-it-and-forget it investment that generates money without you having to do anything. It can also be a bad idea for retirees, depending upon the situation. Not all passive income is the same, and some is more passive than others.
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Here are three passive income ideas that retirees may want to stay away from.
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Rental Properties
Being a landlord can be a good way to make money, but considering rental properties as “passive” income doesn’t always ring true.
If you have the resources to hire a management company to manage the building(s), doing things like collecting the rent, vetting potential renters and overseeing repairs, then rental properties can produce an income stream for you in retirement. But owning and managing rental properties is a full-time job — sometimes 24/7.
If your plan is to use rental properties to fund your retirement, make sure you factor in the cost for someone else to do the hard work for you. Otherwise, you won’t feel like you’ve retired at all.
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Multi-Level Marketing
Multi-level marketing, or MLM, schemes have been around for years. Tupperware, Avon and Mary Kay have lured millions of people — mostly women — into selling storage containers, make-up, skin care, and more to their friends and relatives. And the MLM distribution system seems to have picked up steam in recent years.
At the heart of the multi-level marketing model is not the selling, but the recruiting of other people. These people that you bring into the program are referred to as your “downline.” You make money off the products you sell, and you also get paid based on the production of your downline. Some companies seem to focus more on recruiting than on actual sales, which is what makes the multi-level marketing model untenable. It’s also what generates passive income for the participants.
MLM companies often require an investment from “sales consultants” to start their “own business.” According to the Federal Trade Commission, “(M)ost people who join legitimate MLMs make little or no money. Some of them lose money.”
Signing up for an MLM is not a good way to earn passive income in retirement.
Penny Stocks
Investing in stocks can be a great way to generate passive income in retirement, but not all stocks are created equal. The temptation can be to find low-priced stocks that have high potential and buy them in the hopes that they’ll rise significantly and provide a good return on your investment. But penny stocks, so called because they trade for less than $5 per share, can be extremely volatile.
The U.S. Securities and Exchange Commission (SEC) said, “The very lowest priced stocks are known as “penny stocks.” These companies may have little or no earnings. Penny stocks do not pay dividends and are highly speculative. It would not be difficult for an investor to lose most or all of their money in a short time by investing in penny stocks.
Retirees should invest in a diversified portfolio that includes both stocks and bonds, and that takes into consideration the age of the investor and their time horizon (how soon they will need the money). Thoughtful investments in appropriate companies may not produce the huge returns some retirees are looking for, but they are less likely to wipe out your savings, as well.
Final Take To GO
Passive income ideas for retirees are like a lot of other things in the investment world — if they sound too good to be true, they probably are. Retirement is not the time to be chasing big potential returns since you don’t have the time to recover if things go south. While a more traditional approach may not seem as exciting as generating a big income stream with no effort, it’s probably the best way to go in retirement.
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This article originally appeared on GOBankingRates.com: Worst Passive Income Ideas for Retirees