The best way to generate passive income is through traditional investments like bonds and stocks.

However, alternative investments have become more popular with investors in the last two decades. These passive alternative investments also have the potential to produce long-term sustainable yields.

Wine and other aged drinks

It’s a great way of diversifying your portfolio by investing in aged-worthy beverages like wine. Wine is low in volatility and a great way of managing portfolio risk.

You can start investing in wine as a non-accredited investor or accredited investor.

Real Estate

Real estate is a preferred alternative asset for many investors. It offers low volatility and a stable passive income stream even when the traditional stock market is down.

Three main methods of investing in real estate are available:

  • Rent properties: With a 20% downpayment, you can purchase property and rent it out. This is a great way of securing a steady passive income stream. The best part? You don’t have to do anything other than minor maintenance repairs.
  • REITs – If you don’t want the hassle of maintaining a rental property, then you might consider investing in a realty investment trust (REIT). 90% of REITs’ taxable income is paid to investors as dividends. However, keep in mind that this real estate investment dividend is considered a traditional taxable income by the IRS. Your expenses could rise significantly if you receive a significant amount from REITs.
  • Crowdfunding – This real estate investing method allows you to choose whether you want equity or debt for residential and commercial real estate properties. You get the tax benefit of owning the property, but you don’t have to take on the responsibilities. To be eligible for most crowdfunding platforms, you must be an accredited investor and have a long-term commitment.

Dividend Stocks

Dividends are one of the most common passive alternative investments.

Investors purchase company stock and are then paid a percentage of the company’s profits quarterly or annually. After being paid, you can keep the cash or invest it in the company.

However, keep in mind that your earnings will depend on the company’s profitability. You can also choose companies with the dividend aristocrat mark, which signifies companies that have paid increasing dividends over the past 25 years.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is a comparatively new alternative investment opportunity. However, it is rapidly growing in popularity due to its low entry requirements and development of different P2P online platforms.

The P2P lending platform connects lenders and borrowers so that you can lend money directly to a business or individual.

You can lend money once you’ve received it. A return on investment of approximately 5-12% is possible. This higher ROI comes with higher credit risks.

Investors can either be accredited or non-accredited and invest via P2P lending. The initial investment for many platforms is as low as $25.

Fixed Bonds

Governments and financial institutions usually issue bonds to raise funds. So, if you invest in a fixed income bond, you are considered a creditor rather than a shareowner.

Bonds can be a safe way of earning passive income. They have a fixed interest rate paid at maturity, usually annually or semi-annually. Bonds have also been increasing in interest rates, even though interest rates have fallen over the past decade.

Do your research before you invest. Find out which fixed-income bonds are best suited for your investment portfolio.