Mark Cuban's Passive Income Playbook: Top Seven Ways To Make Money While You Sleep

Shark Tank star and multi-billionaire entrepreneur Mark Cuban understands that not everyone can invest millions in businesses or start their own companies successfully. However, the Dallas Mavericks co-owner believes there are many ways to secure extra money via passive income streams without burning a hole in your pocket.

1. Invest in Stocks That Are Dividend Aristocrats

Cuban shared with AWW Media that dividend-paying stocks are among the best instruments for ensuring passive income, which often grows with the companies you invest in. Dividend aristocrats like Coca-Cola, Chevron, and Walmart have consistently paid and hiked their dividends each consecutive year for at least 25 years. Investors receive dividend payouts in regular intervals, which can be monthly or quarterly, depending on the company. This passive cash flow can build up over the years, but building real wealth involves reinvesting the dividend income into buying more stocks for the best compounding effect on your portfolio and a faster growth rate.

2. Gain Exposure To The S&P 500 Index

Cuban believes the S&P 500 Index offers a slow but steady path to growing wealth. The index, which tracks the performance of the largest 500 companies in the US, has showcased annual average returns of 10%. The S&P 500 index is up over 21% year-to-date, driven by tech giants and AI players like Nvidia. While inflation-adjusted historical returns for the benchmark index hover around 6.37%, several analysts think adjusting returns based on Consumer Price Index data might need to be more accurate since the CPI index could understate the actual inflation rate.

3. Identify Low-Cost Mutual Funds

People can also invest in low-cost mutual funds, which pool investor money and invest it across industries and asset classes for diversification to mitigate market risks and ensure growth stability over time. Fund managers actively manage these funds, so Cuban urges investors to check the fees associated with the funds before injecting capital. Mutual fund fees are often expressed as expense ratios, typically charged to investors annually to cover fund operating costs, advertising expenses, and other associated costs. It is calculated by dividing a fund's operating expenses by the average dollar value of all fund assets. Experts believe an expense ratio between 0.5% and 0.75% is reasonable, but anything higher than 1.5% could begin to impact capital gains significantly.

4. Explore Secure Options Like A High Yield Savings Account

Cuban is all for saving money but doesn't believe in parked cash that isn't growing over time. If you want liquidity and plan to keep savings as it is in a bank account, the entrepreneur suggests you park the cash in a high-yield savings account. These savings accounts offer high interest on your deposits and are generally available with established banks. For instance, high-yield savings accounts from banks like Barclays, American Express, and SoFi offer interest rates between 4.1% and 4.5%, almost ten times higher than the 0.46% national average.

5. Real Estate Investing, Fractional Shares

While dividend-paying stocks can offer steady income, many investors can find it unfeasible to buy blue-chip stocks, especially if they start their investing journey with a nominal amount. However, top brokerages and trading apps allow you to buy fractions of a share at a proportionately reduced cost, some for as low as $5. The concept of fractional shares also shares similarities with real estate investment trusts (REITs), which allow you to buy commercial or residential properties in part or whole via online crowdfunding platforms for monthly rental income and net worth growth through capital appreciation proportionate to your holdings. REITs have democratised the real estate investment landscape in the US by allowing the ordinary person to invest and own the tangible asset class for a small amount, which initially had a high-capital entry barrier and was limited to the wealthy for centuries.

6. Explore Peer-to-Peer (P2P) Lending

Investing in debt is another way Cuban believes can offer an opportunity to earn stable monthly income from interest payments. While there are several ways to invest in debt, including bonds and notes, the billionaire said peer-to-peer lending can work for those who can lend smaller amounts of cash. While the returns can be more lucrative for lending to higher-risk borrowers, Cuban thinks hedging risks of any repayment defaults by choosing to lend to borrowers with lower-risk credit profiles can help create a stable passive income stream, depending on the P2P lending platform.

7. Take Calculated Risks In Things You Believe

Cuban thinks securing your hard-earned money in low-risk options is good, but there might be more effective ways to build wealth if your focus is not limited to passive income streams. He explains that investing meagre amounts in causes, companies, or assets you believe can become big later is also worth it. Investments could be in art, collectables, or AI stocks, but make sure to have a cap on how much you are willing to invest in relatively riskier assets.