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Generating passive income is a common financial goal today. Across Britain, people are looking for additional sources of cash flow.
The good news is that it has never been easier to achieve this goal. With this in mind, here are some passive income investment ideas to consider for 2025.
Investment funds and ETFs
Without a doubt, one of the easiest ways to generate additional cash flow today is to invest in an income-focused mutual fund. They generally invest in a number of companies that pay dividends and pass them on to investors in the form of income distributions.
An example of such a fund is the Vanguard FTSE All-World High Dividend Yield UCITS ETF. This currently offers a return of around 3%, meaning an investment of £10,000 generates an annual income of around £300.
It's not the highest yield out there, but this fund also tends to generate solid long-term capital gains. Over the past five years, the share price has risen around 20%, meaning investors have enjoyed total returns of around 8% annually.
Investment trusts
Investing money in investment trusts can also be a good way to generate an income stream. They are quite similar to funds in that they offer broad exposure to the market.
An example of an income-focused trust is Trader confidence (LSE: MRCH). It aims to generate high and growing income (along with some capital growth) and currently offers a yield of around 5%.
It is worth noting that this trust is one of the Association of Investment Companies' dividend heroes. This means you have increased your income payment every year for at least 20 years.
Some of the major holdings in this trust's portfolio include British American Tobacco, GSK, Shell, Barclaysand Rio Tinto. All of these stocks pay dividends regularly.
Now, it's worth noting that while the yield here is high, the trust hasn't generated much capital gains in recent years. In the last five years, for example, the stock price has not gone anywhere.
This is a good example of why it is important to look beyond the performance of an investment and focus on total returns. Just because a product is a high performer doesn't mean it will be a fantastic long-term investment.
In this case, many of the stocks you own haven't performed as well over the past five years as they operate in structurally challenged industries like oil, gas, and tobacco. This trend could continue.
<h2 class="wp-block-heading" id="h-individual-dividend-stocks“>Individual Dividend stocks
Finally, investing in individual dividend stocks can be a great way to generate additional income. This approach is riskier than investing in a fund. This is because each company has its own risks. But the returns on offer can be attractive.
HSBCFor example, it is currently expected to pay 64.5 pence per share by fiscal 2025. Given that its share price is 782 pence today, that translates to a yield of around 6.7%.
M&GMeanwhile, it is currently expected to pay 20.7 pence per share by 2025. That equates to a yield of around 10.4% at the current share price.
However, as I said, investors should be aware of company-specific risks with stocks like these. With individual stocks, share prices can fall 10%, 20% or more if the company's results are poor.
That's why it's crucial to build a diversified portfolio to manage risk.
