3 essential factors for investors to consider when aiming for passive income success

Yahoo

09-02-2025

Seldom a week goes by without someone asking me how to earn passive income through investing. Since the rise of remote working during Covid, building wealth through passive income's become a key goal of many individuals.
The problem is that many wealth-building strategies aim to satiate the common desire for a rapid solution. When investing for income, the reality's usually a far cry from the get-rich-quick schemes touted by social media influencers.
If the thought of a long, drawn-out process is off-putting, consider this. When I started investing at 35, I thought I was too late. It took dedication but less than a decade later, I was well on my way towards earning a second income. If I'd hoped to see results within a year, I'd likely have given up.
Patience and dedication are key factors to consider, but they're not the only ones.
A key part of risk management is developing an appropriate asset allocation strategy. This essentially boils down to deciding how much risk is tolerable.
An investor who can survive on half their salary could potentially allocate the other 50% to investments. The decision then is how to divide that capital between bonds, commodities and stocks.
A 60/40 allocation (60% stocks, 40% bonds) is a popular option. Others may choose 30% commodities, 30% bonds and 40% stocks. Cash and bonds are considered low risk/low return, while stocks and commodities have higher risk/return potential.
An investor should always aim to achieve the perfect risk/reward balance based on their financial circumstances.
Picking the right stocks at the right time can make or break a portfolio. With the sheer amount of options available, it can be a daunting process. It may seem obvious to pick whatever big tech stocks are trending at the time but this method seldom works long term.
A truly diverse portfolio should also include some companies with a 20-30-year projection of stable growth. Think large, well-established and closely tied to the economic prosperity of the country. One example is Barclays (LSE: BARC).
Unlike HSBC, Barclays is more deeply rooted in the UK and less likely to move headquarters abroad. As the second-largest bank in the UK, it's very well-established and invested in the country's economic progress.
It's also been on a tear lately, with the price up 111% in the past year. Despite the rapid growth, it doesn't appear overvalued yet, with a forward price-to-earnings (P/E) ratio of only 7.3. This follows two years of slow growth during which high inflation subdued economic activity. With the first interest rate cut of 2025 done (and perhaps more on the horizon), the hope is that inflation will drop further this year.
Unfortunately, as a bank, it's highly sensitive to economic downturns — remember the 2008 financial crisis? Barclays crashed by over 80% during that period. There's always the risk that a similar event could send it tumbling again.
That's why diversity's key, not just between stocks but also between asset classes. Commodities tend to move inversely to stocks while bonds maintain stability in most situations.
I'm not looking to add more bank stocks to my portfolio right now but for investors aiming for long-term passive income, I think Barclays is a good option to consider.
The post 3 essential factors for investors to consider when aiming for passive income success appeared first on The Motley Fool UK.
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Mark Hartley has positions in HSBC Holdings. The Motley Fool UK has recommended Barclays Plc and HSBC Holdings. 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.
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