At the start of the year, I decided to try and give my passive income a boost. I cashed in my Premium Bonds and invested the money into a real estate investment trust (REIT).
So far, the result has been excellent. The dividend income that I’m now earning amounts to a 600% increase on what I was receiving from Premium Bonds.
Furthermore, as I reinvest the dividends, the amount that I’m receiving is increasing gradually. The strategy isn’t risk-free, by any means, but it’s been working very well for me so far.
Back in January, I took stock of my investments. I noticed that I had some money invested in Premium Bonds.
Unlike other bonds, Premium Bonds don’t have fixed returns. Instead, holders are entered into monthly draws to win cash prizes.
I knew I’d won a few times before, but I also knew that I hadn’t done especially well. So I sat down to figure out how much I’d been making.
By my calculations I’d managed to achieve a return of around 0.58% per year. That’s over a period of quite a few years.
Every month, someone wins £1,000,000 with Premium Bonds. But it wasn’t me, so I decided to move my money somewhere else.
Back in January, I cashed out my Premium Bonds and invested the money into a company called Realty Income. The company is a REIT.
REITs make money by renting out property. The income they make from this is then distributed to shareholders.
Since I invested in the business, I’ve been generating passive income in the form of monthly dividends. And as I’ve reinvested the money I’ve been paid, the amount I’ve collected has increased.
Last month, my dividend represented a 0.34% return on my initial investment. Collecting that every 12 months means an annual return of 4.08% – a 603% increase on what I was receiving from Premium Bonds.
I’m not stopping there, though. By reinvesting the dividends I receive, I’m expecting to increase the amount that I get paid month by month.
Risks and rewards
For me, moving my money to a REIT instead of investing in Premium Bonds has been a success so far. But there are a few things to note about this strategy.
The first is that I see Realty Income as a steady source of passive income. My goal is to increase my monthly income gradually over time.
Unlike with Premium Bonds, there’s basically no chance of me winning a million next month with Realty Income shares. The chances weren’t high with Premium Bonds, but I think they’re lower now.
Second, if Realty Income goes bankrupt, I’ll lose my money. This can’t happen with government-backed Premium Bonds, which means there’s an additional risk for me.
I’m extremely confident this won’t happen, given the company’s long and successful history. But I can’t know it with the kind of certainty that I can have about Premium Bonds.
Having only made the change a few months ago, it’s still early days. But so far, investing in a REIT has increased my passive income by just over 600% and I think there’s more to come.
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Stephen Wright has positions in Realty Income. The Motley Fool UK has no position in any of the shares mentioned. 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.