Right now I have 50k/no debt and I am trying to build up a passive income. I need something that will generate me around 5k a year. I'm a little scared and don't know much about investments. I'm looking for something that is relatively low risk. I appreciate any advice that I am given. Hopefully I can build up a good enough passive income so I don't have to worry about life as much.
closed as too broad by Dheer, Victor, MD-Tech, Daniel Anderson, Nick R Oct 21 '16 at 19:32
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Unfortunately, in this market environment your goal is not very realistic.
At the moment real interest rates are negative (and have been for some time). This means if you invest in something that will pay out for sure, you can expect to earn less than you lose through inflation. In other words, if you save your $50K, when you withdraw it in a few years you will be able to buy less with it then than you can now.
You can invest in risky securities like stocks or mutual funds. These assets can easily generate 10% per year, but they can (and do) also generate negative returns. This means you can and likely will lose money after investing in them. There's an even better chance that you will make money, but that varies year by year. If you invest in something that expects to make 10% per year (meaning it makes that much on average), it will be extremely risky and many years it will lose money, perhaps a lot of it. That's the way risk is. Are you comfortable taking on large amounts of risk (good chances of losing a lot of your money)?
You could make some kind of real investment. $50K is a little small to buy real estate, but you may be able to find something like real estate that can generate income, especially if you use it as a down payment to borrow from the bank. There is risk in being a landlord as well, of course, and a lot of work. But real investments like that are a reasonable alternative to financial markets for some people.
Another possibility is to just keep it in your bank account or something else with no risk and take $5000 out per year. It will only last you 10 years that way, but if you are not too young, that will be a significant portion of your life. If you are young, you can work and add to it.
Unfortunately, financial markets don't magically make people rich. If you make a lot of money in the market, it's because you took a risk and got lucky. If you make a comfortable amount with no risk, it means you invested in a market environment very different from what we see today.
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To get an idea of what risk free investments (after inflation) earn per year at various horizons see this table at the treasury. At the time of this writing you would have to invest in a security with maturity almost 10 years in order to break even with inflation. Beating it by 10% or even 3% per year with minimal risk is a pipe dream.