The Prosperity Protocol

Issue #5 - May 5, 2025

Editor’s Note: Todd here, and welcome to the fifth issue of The Prosperity Protocol!

I've got some exciting news to share with you all. Based on your feedback and questions, I'm expanding the focus of this newsletter! While we'll still cover investment strategies, we're broadening our scope to include all aspects of building wealth — from the very basics of managing money to more advanced financial strategies.

Why the change? Because true financial success isn't just about picking the right investments. It's about creating a strong foundation and making smart decisions across your entire financial life. Whether you're just starting out or already have some experience, there's always room to strengthen your wealth-building skills.

This week, we're exploring a topic that appeals to almost everyone: Building Passive Income Streams. We'll cover options ranging from super-simple approaches for beginners to more sophisticated strategies for those further along their financial journey.

The Passive Income Advantage: Money That Works While You Don't

Have you ever noticed how people who achieve financial independence seem to have money flowing in from multiple sources, not just their day job?

That's the power of passive income — money you earn with minimal ongoing effort after an initial investment of time or money. It's like planting financial seeds that grow into money trees over time.

My passive income journey started with something incredibly simple: a high-yield savings account that paid me a whopping $7.32 in interest my first month. I still remember how exciting it was to earn money while literally doing nothing! That small start ignited my curiosity about other ways to generate income without trading more of my time.

Today, I've built several passive income streams that together generate over $3,200 monthly — enough to cover my essential expenses if I needed it to. The best part? Most of these started with very small investments and grew over time.

Your Passive Income Blueprint: From Beginner to Advanced

Let's look at how to build passive income streams at any financial stage:

1. Start with Risk-Free Passive Income (Perfect for Beginners)

Even if you're just starting out, you can begin generating passive income today:

High-Yield Savings Accounts (0-1 hours to set up)

Current yields: 3-5% annually

Minimum to start: Often $0-$100

Risk level: Essentially none (FDIC insured)

While 3-5% might not sound exciting, it's literally free money for keeping your emergency fund or short-term savings somewhere smart rather than a traditional bank account paying 0.01%. Online banks like Ally, Capital One 360, and Marcus by Goldman Sachs consistently offer competitive rates.

Series I Savings Bonds (1-2 hours to set up)

Current yields: Approximately 4% (adjusts with inflation)

Minimum to start: $25

Risk level: None (government-backed)

I-bonds are one of the most underrated passive income vehicles for beginners. These government bonds protect against inflation by adjusting their interest rate every six months. The only catch? You can't withdraw for at least one year, and withdrawing before five years sacrifices three months of interest.

Cash Back Credit Cards (1 hour to apply)

Average returns: 1.5-2% on spending (potentially $300-600+ annually)

Cost to implement: $0 (with no-annual-fee cards)

Risk level: None (if paid in full monthly)

If you're already spending money, why not earn some back passively? Cards like the Citi Double Cash and Chase Freedom Unlimited offer 1.5-2% cash back on everything you buy. Just remember this only works if you pay the balance in full every month!

Sarah, a reader who was skeptical about passive income, started with just these three beginner-friendly options last year. "I was surprised to generate over $940 in my first year doing essentially nothing different than before, except moving my money to the right places," she shared.

2. Build Intermediate Passive Income Streams (For Those with Some Capital)

Once you have some money saved and basic financial habits established, these options become available:

Dividend-Paying ETFs and Index Funds (2-3 hours to research and set up)

Average yields: 1.5-4% annually, plus potential growth

Recommended minimum: $1,000+ (though you can start with less)

Risk level: Moderate market risk

Funds like SCHD (Schwab U.S. Dividend Equity ETF) or VYM (Vanguard High Dividend Yield ETF) own baskets of stocks that regularly pay dividends. The beauty is simplicity—one purchase gives you instant diversification across dozens or hundreds of dividend-paying companies.

Automated Royalty Platforms (3-5 hours to research and select)

Potential returns: 5-12% annually

Recommended minimum: $500-$1,000

Risk level: Moderate to higher

Platforms like Royalty Exchange and Masterworks allow you to invest in music royalties, art, and other creative assets that generate ongoing income. While more specialized, these can provide income streams uncorrelated with the stock market.

Real Estate Investment Trusts (REITs) (2-3 hours to research)

Average yields: 3-7% annually

Recommended minimum: $500+

Risk level: Moderate real estate market risk

REITs like Realty Income (O) or Prologis (PLD) let you earn income from commercial real estate without becoming a landlord. They're required to distribute 90% of their taxable income to shareholders, which typically results in higher dividend yields than average stocks.

Mark, who started with high-yield savings two years ago, has gradually built a dividend portfolio generating about $215 monthly. "I started with just $50 a month into SCHD. As I got more comfortable, I added other dividend ETFs and a few individual REITs. Now I'm working toward $300 monthly in dividends by next year."

3. Advanced Passive Income Strategies (For Experienced Wealth Builders)

These approaches require more capital, knowledge, or time to set up, but can generate substantial passive income:

Rental Real Estate (10-40+ hours for acquisition, then 1-5 hours monthly with property management)

Average returns: 5-10% cash flow yield plus appreciation

Recommended minimum: $20,000-$50,000+ (for down payment and reserves)

Risk level: Moderate to high, depending on property and location

While requiring more upfront work and capital, rental properties can generate significant monthly income while potentially appreciating in value. Using property management companies (typically costing 8-10% of rent) can make this more passive.

Peer-to-Peer Lending (5-10 hours to research and set up strategy)

Average returns: 5-9% after accounting for defaults

Recommended minimum: $5,000+

Risk level: Higher (default risk)

Platforms like Prosper and LendingClub let you loan money directly to individuals, earning interest as they repay. Diversifying across many small loans (rather than fewer large ones) is key to managing risk.

Creating and Selling Digital Products (50-200+ hours to create, then minimal ongoing work) Potential returns: Unlimited (from a few dollars to thousands monthly)

Cost to start: Primarily time investment

Risk level: Low financial risk, but time investment risk

E-books, online courses, stock photography, printable planners, and other digital products can generate income for years after creation. The upfront work is substantial, but the ongoing maintenance is minimal.

Jennifer, one of our subscribers, spent three months creating a comprehensive Excel budgeting template. "After listing it on Etsy for $12.99, it now generates about $650 monthly with virtually no additional work. I update it once annually for about two hours of effort."

Beyond the Basics: Passive Income Optimization

Tax Efficiency Matters Where you hold passive income investments significantly impacts how much you keep:

• For Beginners: Hold dividend stocks and REITs in tax-advantaged accounts like Roth IRAs when possible.

• For Intermediates: Consider municipal bonds in taxable accounts for tax-free income.

• For Advanced: Explore cost segregation and depreciation benefits for rental real estate.

The Compounding Strategy The real magic happens when you reinvest passive income to generate even more passive income:

• For Beginners: Set up dividend reinvestment in investment accounts.

• For Intermediates: Create a "seed capital fund" where a portion of all passive income goes toward starting your next income stream.

• For Advanced: Build a passive income ladder where income from one source funds the next, higher-returning opportunity.

Diversification Across Income Types Different passive income sources respond differently to economic conditions:

• Interest-based income (savings, bonds) typically performs better when rates rise.

• Dividend stocks often do well during moderate growth periods.

• Real estate can provide inflation protection during higher inflation.

• Digital products can be countercyclical, performing well during economic downturns.

By building multiple types of passive income, you create more resilient income streams.

Money Term Made Simple: Passive vs. Active Income

Passive Income is money earned with minimal ongoing effort after an initial investment of time or money. Examples include interest, dividends, rental income, and royalties.

Active Income requires your direct and ongoing time and energy, like your regular job, freelance work, or a side hustle you actively manage.

The key difference? With passive income, you can earn money while sleeping, traveling, or focusing on other activities. With active income, when you stop working, the money stops flowing.

Most financially successful people build both types of income, using active income to fund investments that generate passive income until eventually, passive income can reduce or replace the need for active income. For me, my career provided the needed capital to start small and begin building various additional income streams (both passive and active) that ultimately helped me grow my wealth exponentially faster than I would have been able to otherwise.

What's Happening in Markets This Week (May 5-9, 2025)

Markets closed on a positive note last week with the S&P 500 gaining about 3% while the tech-heavy NASDAQ increased by 3.42%. The 10-year Treasury yield ended at 4.63%.

For passive income investors, the Federal Reserve's recent signals about potentially holding interest rates steady through 2025 suggests that interest-bearing investments (savings accounts, CDs, bonds) may continue providing attractive yields in the near term. This creates opportunities for both beginners (high-yield savings) and more experienced investors (bond ladders, fixed-income funds).

Key events to monitor this week:

• Monday (May 5): ISM Services PMI data; Earnings from Palantir, Clorox, Ford, and Tyson Foods

• Tuesday (May 6): Trade Balance report; Earnings from major companies including AMD, Marriott International, and Duke Energy

• Wednesday (May 7): Federal Reserve FOMC meeting and interest rate decision (no change expected); Consumer Credit data; Earnings from Walt Disney, Uber, and DoorDash

• Thursday (May 8): Weekly Jobless Claims; Earnings from several financial and consumer companies

Your Questions, Answered

Question from Alex P.: "I have $2,000 I'd like to use to start generating passive income, but I'm not sure if I should focus on dividend stocks, a high-yield savings account, or something else entirely. What would you recommend for someone just getting started?"

My take: Great question, Alex! The right starting point depends on a few key factors.

First, let's consider your financial foundation. Before investing for passive income, make sure you:

1. Have an emergency fund covering at least 3 months of expenses.

2. Are free of high-interest debt (like credit cards).

3. Are capturing any employer retirement match available to you.

If those boxes are checked, here's what I'd recommend for your first $2,000 in passive income investing:

If you're completely new to investing: Start with a high-yield savings account for $1,500 of that money while putting $500 into a broad-market ETF like VTI or VOO through a tax-advantaged account like a Roth IRA. This gives you safety while dipping your toes into the market.

If you're comfortable with investing basics: Consider putting $1,000 into a dividend-focused ETF like SCHD and $1,000 into a bond ETF like BND or VCIT. This creates a balanced approach with some growth potential (dividends) and more stable income (bonds).

If you want a "set it and forget it" approach: Look at a single all-in-one ETF like JEPI, which uses a managed approach to generate higher monthly income (current yield around 7-8%) while still offering some growth potential. Just be aware this comes with more complexity and slightly higher fees.

The most important thing is to start somewhere and add consistently over time. Even small beginnings can grow into significant income streams through the power of compound returns and regular contributions.

Tools That Make Passive Income Easier

Building passive income streams is easier with the right tools. Here are three that help at different experience levels:

1. Acorns – For Savings on Autopilot
Acorns makes building passive income accessible through micro-investing. Their "Round-Ups" feature automatically invests your spare change from everyday purchases, and you can set up recurring investments starting at just $5. Their basic plan ($3/month) includes investment, retirement, and checking accounts with a metal debit card. This is perfect for beginners who want to start building dividend income with minimal effort.

2. M1 Finance – For Dividend Income Automation
M1 lets you create custom "pies" of dividend investments with automatic reinvestment and rebalancing. Their basic account has no management fees, and you can start with as little as $100. The platform works well for both beginners and intermediates looking to build dividend income.

3. Stessa – For Rental Property Management
If you've advanced to real estate investing, Stessa (free for basic features) automates income and expense tracking for rental properties. It syncs with bank accounts, categorizes transactions, and generates financial reports that make tax time much easier.

All three tools have mobile apps, making it convenient to manage your passive income streams wherever you are.

Three Things to Do This Week

1. Calculate your current passive income from all sources (interest, dividends, etc.) to establish your baseline. Knowing your starting point is essential for measuring progress.

2. Open one new passive income stream, even if it's just a high-yield savings account or setting up dividend reinvestment on existing investments. Taking action creates momentum.

3. Create a simple "passive income plan" listing 2-3 income streams you want to build over the next year, with specific dollar targets and action steps for each.

Let's Keep the Conversation Going

Want more detailed strategies for building passive income? Check out my Medium publication "Investor's Handbook" where I explore these topics in greater detail.

Visit My Medium Publication → Here

What passive income strategies are working for you? Reply to this email with your approach—I'd love to feature reader experiences in our next issue.

Found this helpful? Share it with a friend who might benefit from starting their passive income journey. New to the newsletter? Subscribe below to join our growing community.

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Remember – building passive income isn't about getting rich quick. It's about consistently planting and nurturing income seeds that grow into money trees over time.

Until next week,
Todd

This newsletter is for educational purposes only and doesn't constitute financial advice. Always do your own research and talk to a qualified professional before making financial decisions.