We talk a lot about passive income here at Ideal. Essentially, it’s all about building yourself a stream of income that’s going to bring you money every month that you don’t have to put much effort towards besides initially setting it up. Sounds great, right?
Well, there’s a whole different side to the whole passive income craze that people on the internet aren’t going to tell you. Yes, if you can earn a reliable source of passive income without having to put in much effort, that’s absolutely incredible. However, a lot of the time, the effort you put into building a passive income stream just isn’t worth the return.
Let’s say you spend hours and hours trying to set up a website, you pay a developer to help you make it look nice, you’re paying graphic designers to help you make a logo, and, when it’s all said and done, you‘ve spent hours and hours trying to get it off the ground only to find out that it’s generating only a couple bucks a month. Or, worse, it’s generating no money whatsoever.
This story is a whole lot more common than some people out there might lead you to believe. And, for every influencer who’s built a $1,000-per-month passive income stream, there are 10 people who spent hours on a business that’s generating no money. I know… I’ve been there!
Now, I’m not saying that there’s no way to make passive income models work for you. I’m just saying that, if you want to succeed in building a passive income stream, you need to do the right things. And a huge part of that is knowing which types of businesses have the potential to generate significant returns and which businesses are going to be a waste of your time.
So, in this article, I’m going to go over the 4 worst passive ideas in 2022 and, hopefully, save some of your some time, energy, and money. These are the 4 worst passive income ideas in 2022.
#1: Social Media Influencer
Listen, I’m not saying that you’re not cool or attractive or that you’re not influencer-worthy. I’m saying that a ton of people underestimate how difficult it is to become a successful influencer to the point where it’s actually generating a significant amount of income.
Take it from me, I work way more than 40 hours per week working on our Ideal brand, putting out videos, managing our Instagram, editing our blog, and doing the thousand other things that it takes to run a YouTube channel. And it still feels like an uphill battle sometimes.
Why? Because the influencer market is just so saturated these days. And the vast majority of people who try to become an influencer don’t make any money whatsoever and end up leaving the industry shortly after getting started.
The ones who do end up making money are the ones who spend countless hours working on their brands, editing photos, searching for engaging content ideas, and really just putting in the work, which is anything but passive.
Just I read a testimonial from influencer Mallory Cornelison (who goes by Mallory Brooke on Instagram and YouTube) that she gave to Huffpost. She’s been spending over 8 hours a day for 5 years working on her brand and admits that the pay is still low. The only reason she’s still in the game is that she loves what she does.
So, if you think that you can just pull out your iPhone and start snapping selfies and become a successful influencer, think again.
Yes, there is money to be made in being an influencer. In fact, the industry is set to be worth over $16 billion dollars by the end of 2022. But, being an influencer is, by no means, a way to make passive income. It takes hours and hours of work every day and years of dedication to even start earning any money.
If you’re looking to make serious passive income, snapping selfies of yourself once and a while is not going to do it.
#2: Investing in Individual Stocks
Investing in stocks is another one of these ways to earn money that has a whole glamorous aura to it. And that leads a lot of naive people into thinking that they can just put a few hundred dollars into some risky stocks and then wake up the next day with enough money to buy their own yacht.
And, while some people have gotten extremely lucky and made it rich by investing in stocks that blew up overnight (like those guys who jumped in on the whole Gamestop-Reddit craze in which Gamestock’s share price grew over 1,000% in just two weeks), the majority of the time, investing in single stocks might make you a little bit of money, but it could also lead to you losing a lot of money.
Take it from investment mogul Warren Buffet, who once said, “I don’t think most people are in a position to pick single stocks. I think people are much better off buying a cross-section of America and just forgetting about it.”
And the reason for this is that most people, quite simply, do not have enough money to invest in individual stocks wisely. When putting your money in the stock market, it’s extremely important that you diversify your portfolio, which means spreading your money across a whole bunch of different stocks.
That way, when one of the stocks doesn’t perform so well, you’ll have other stocks in your portfolio that will perform well and you probably won’t experience massive losses.
How many stocks do you need to hold to be adequately diversified? Well, some say the number is between 20 and 100. But, if you’re investing in 20 to 100 individual stocks, that means you’re going to have to independently research those 20 to 100 stocks and spend a ton of time doing so.
So, investing in individual stocks responsibly is anything but a passive income stream. What should you do instead? Well, to go back to what Warren Buffet said, you’re better off going with a cross-section of the American economy. And he’s referring to investing in index funds.
Index funds are massive investment funds that track certain market indexes. And Buffet himself recommends that average people invest in S&P 500 index funds specifically, which track the S&P500 market index, composed of the largest 500 U.S. companies.
These types of index funds offer reliable and consistent returns and are far more likely to generate real returns in the long run than individual stocks. No, index funds probably won’t make you rich overnight like betting on an individual stock might. But, they also don’t carry massive amounts of risk and put you in jeopardy of losing your entire investment.
So, the lesson here is that you should never casually invest in individual stocks and put all your money at risk. And, if you are going to try your hand at investing in individual stocks, it’s going to have to be far more of an active job than a passive investment if you want to make money. Most of us are better off just going with index funds.
#3: Flipping Houses
If you’ve ever been flipping through TV channels and come across an HGTV show like Fixxer Upper, House Hunters, or Masters of Flip, then you’re probably under the impression that flipping houses is an easy way to make a ton of cash.
But, a whole lot of what you’re seeing on those types of shows is Hollywood magic and the reality is that flipping houses is a whole lot riskier and more difficult than it appears on TV.
First of all, a lot of people underestimate the amount of money they really need to flip a house successfully. You either need to buy the house in cash without financing, which can be supremely expensive, or you can take out a line of credit, which means you’ll have to pay interest until you pay off the principal.
And, considering housing prices have absolutely blown up in 2022 and the fact that mortgage rates have gone to the moon this year as well, it’s super hard to be able to afford a house these days, even if it’s a house that you’re planning on flipping.
On top of all that, a lot of people underestimate how much time, effort, and money it takes to renovate a house. If you want to go DIY-style and perform your own renovations, you can save yourself a lot of money, but that’s the furthest thing from passive income since you’ll have to spend hours upon hours crouched over with a hammer and nails.
On the other hand, you could hire people to do your renovations for you, but that’s just going to make it even harder to turn a profit because you’ll have invested much more money into the house.
If you do want to get into flipping houses, you need to do an immense amount of research to find out what your ideal purchase price should be based on how much you expect to pay for renovations. And then you need to follow the 70% rule, meaning that you should never pay more than 70% of what you believe the house will be worth after you finish doing all of the repairs.
However, since housing prices are currently so high and will probably fall significantly by the time you’re done with doing all of the repairs, 2022 is definitely not the time to get into flipping houses.
At the current moment, the housing market seems to be correcting itself and prices could very well fall dramatically in the next year or two. So, it’s probably better to wait out this storm and let things go back to normal before trying your hand at house-flipping.
#4: Fantasy Gaming
Maybe you’ve seen some headlines like this one: “People Making $100,000 Per Year Playing Fantasy Football” and you think, Wow, I can make a ton of money just from watching football. Sounds like the dream, right?
Well, like most dreams, it’s very different from reality. Listen, I’d love nothing more than to get paid six figures to watch the Seahawks play, but that’s just not how it works. And the truth is that the vast majority of people who play fantasy sports end up losing money.
In fantasy sports, 1% of players earn 91% of the profits. The overwhelming odds say that you’re probably going to end up losing money. Even if you’re in the 14% of people who’re earning their beer money, you’re essentially breaking even.
But, once again, the odds say that you’ll most likely end up a loser. If you love playing fantasy sports with your buddies and are willing to lose some money for the fun of it, that’s perfectly fine! Just don’t get super into fantasy sports and expect it to provide you with income.
Fantasy is betting, at the end of the day, not a passive income stream. And people need to stop treating it as such.