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There are many ways in this world to make a second income. Yet it’s important to weigh up many factors when deciding which particular avenue to go down. I’m a big fan of using dividend stocks, but have also earned interest from owning crypto and renting out a flat in the past. But here’s why I believe that buying stocks is the best way to make cash.
Let’s talk volatility
At one end of the scale, the least volatile way to earn interest is simply putting money in a savings account. The value of my investment won’t move at all.
As for the stock market, share prices change throughout the day. This could mean that while I’m waiting to receive the next dividend, the value of my investment could rise or fall in value.
Some would argue that this is a reason to go for alternative income investment options. However, I’d argue that buying cryptocurrency to make money exposes an investor to even higher volatility. Just take a look at the whipsaw movements over the past couple of years! I could have made money here but I might have lost it too.
Property has been less volatile and can be lucrative. However, property prices have fallen over the past year, showing that even that area isn’t immune to losses.
Yield potential
The beauty of investing in dividend stocks is that I can select the yield at the point of investing. Granted, the yield changes over time. But I can decide if I want to target safer income ideas with a yield of 3% or 4% or if I want to be aggressive and go for something riskier with a 9% or even double-digit yield.
This flexibility isn’t something that other areas can really offer me. Some crypto coins can be deposited to earn income, others simply can’t. As for buy to let, the yield is unique to the property that’s owned. If I don’t like the yield, I can’t just swap it for another house as easily as I can sell a stock.
As a side point, the yield on a stock can fall to zero if the business decides to cut the dividend for some reason. This is a risk if the firm falls on hard times.
Ease and convenience
My favourite point when comparing stocks to other alternatives is that I’m free to buy one with just a few clicks of a button. Even if I have only £100 in my account, I can get involved.
Particularly with property, the minimum investment amount is large, and it can take months to buy a place before I could start to make income.
I accept that if I invest a small amount in a stock, I’m not going to make much from the dividends. But I can build up an investment pot over time. For example, putting away £100 a month with an average yield of 7% would grow to over £17,500 in a decade thanks to compounding.
