Investments That Generate Passive Income - What Matters Most?

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27 Feb 2024

The Same Page
Firstly, a common misunderstanding in regard to passive income, is that it requires investment. This is not necessarily the case. Although I will be addressing this particular aspect of passive income, it is also important to bear in mind that this can also be achieved via other “creative” methods. Perhaps, I will address some of these methods at a later stage. However, for now, it’s back to the matter at hand.
I am sure we can all agree that many of the casualties of 2022 were investors in search of yield. The carnage within the lending space has definitely put a damper on the whole idea and concept of creating passive income within the Crypto space. However, even catastrophic events are not going to bring an end to investors seeking out passive income opportunities. They simply retreat, re-evaluate, and re-enter the battlefield.
Someone who has “working capital” will always put it to work, regardless of the risks involved. What they will however do, is attempt to identify the best possible opportunity or opportunities. In actual fact, choosing opportunities, as opposed to a single opportunity is one of the strategies a prudent investor utilizes. This is the first, and often most effective rule of successful investing, diversification.
Diversification
One of the biggest mistakes investors made in 2022 was remaining within a single niche. Many believed that diversification within the lending realm would protect them. As a result, many chose to diversify by making use of multiple lending services. For example, an investor split their capital between Celcius, BlockFi, and Hodlnaut. Unfortunately, it didn’t help! Diversification is not diversification if it remains within a single niche.
A prudent investor would have considered an approach that incorporated true diversification, while yet remaining within the Crypto space. Below is an example that incorporates different sectors within the Crypto space that simultaneously provide a level of return and diversity:

30% Crypto lending
40% HBD
40% Betfury

So, what we have in the abovementioned example is an allocation to one or more lending services. There is also an allocation to a stablecoin investment, as well as a token that pays dividends, based on the revenue of the platform. An investor who is seeking even more diversity could have made use of an opportunity such as tokenized real estate. This brings me to the next point.
A Healthy Risk/Reward Ratio
Risk usually rises in conjunction with the yield on offer. An exceptionally high yield is usually indicative of significant risk. A prudent investor will attempt to identify opportunities that have favorable relativity ratios at work within the risk/reward ratio. In other words, in relation to the “benchmark”, these opportunities are more favorable without increasing the risk profile.
This can also take place in reverse and is most notable in regard to tokenized real estate. In other words, your invested capital is unlikely to experience devaluation, while simultaneously providing an acceptable yield. Some opportunities don’t even offer great returns, and yet are inherently risky. Personally, I avoid such opportunities or consider them a gamble with minimal exposure.
Liquidity & Ease Of Access
This is very important! It doesn’t help much if you earn yield that you have no access to, or have difficulty accessing. I have seen a lot of this. Often I encounter people I know who have begun “playing around” in the Crypto space. This usually involves some type of HYIP that has been redesigned to attract uneducated Crypto investors. What you usually see is a low withdrawal threshold. In other words, what investors are actually able to realize is minimal.
Essentially, these platforms hold your capital, and earn yield with your capital, while simultaneously supplying investors with breadcrumbs. This is exactly why DeFi and WEB3-Based opportunities are the way to go. You get to decide when and how much you would like to withdraw. Furthermore, you can withdraw your entire investment at any time. This is how it should be in regard to your own money, right? Nobody gets to tell you how or when to eat the food in your own house.
These are the flaws of TradFi, which scammers love to leverage, and subsequently, use as a valid reason for their “restrictions”. Being able to trade these earnings for BTC, or any other usable currency is also extremely important. There needs to be a healthy level of liquidity. If you are going to battle to spend or acquire your capital it’s perhaps not the best option.
Final Thoughts
Identifying viable investment opportunities for ongoing passive income is often a process of elimination. It’s important to work through a list, in order to establish which are actually viable. Many investment ideas appear great at first glance. However, only after entering these investment ideas do investors realize the pitfalls involved.
This is exactly why, as an investor, doing your own research is imperative, and should never be overlooked prior to entering any investment opportunity. That’s it for this one, catch you next time!

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Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.