Staking vs. dividends – which of these two strategies is the key to long-term passive income? Investors should pay attention to this when considering the various options.
• Various strategies to generate income passively on the stock market
• Dividends – traditional investment option with comparatively low risk
• Staking – high returns, but extreme price fluctuations are also possible
Interested investors are always looking for attractive investment opportunities. There are a number of different strategies investors can use to invest their money in the stock market. In the best case scenario, these secure long-term income without having to actively do anything about it. Strategies that generate such passive income include staking or dividends. The question of which of these strategies works better ultimately depends on various factors – in particular your personal investment goals, interests and your own risk tolerance.
Advertising
Trade Bitcoin and other cryptos via CFD (also with lever)
At Plus500 you can bet on rising and falling crypto prices – even with leverage. Try the free demo account now!
Plus500: Please note the Hints5 about this advertisement.
Different strategies to generate passive income
In order to generate passive income, it is – contrary to popular opinion – not absolutely necessary to invest huge sums in real estate or direct company investments. Even with smaller contributions, a lot of money can accumulate in the long term.
One option is to buy shares traded on the stock exchange. No big initial investment is necessary here. Investors provide a company with money, even in small amounts, in the hope that the company will continue to grow and make profits. Shareholders receive a return in the form of dividend payments.
A somewhat newer alternative is staking cryptocurrencies. Here too, investors ultimately receive a reward for holding cryptocurrencies.
Staking vs Dividends
But what exactly does staking mean, what are dividends, how do the different strategies work and what opportunities and risks do they pose?
Dividends are distributions that shareholders generally receive at regular intervals from the companies in which they are invested. These payments represent a portion of a company’s profits and are thus considered a reward for shareholders’ investments. Investors usually receive dividends automatically and without much effort – all that is required is a securities account with a broker. Investors also don’t have to worry about taxes, as dividend income in Germany is usually taxed and paid automatically by the broker. It is impossible to predict how high the dividends will ultimately be. Various factors such as the price development of the shares and, in particular, the development of the company play a decisive role here. Historical dividend payments can serve as an indication, but they cannot be used to make reliable statements about future dividends.
When staking, cryptocurrency owners hold their cryptocurrencies in a digital wallet, also known as a wallet. The coins are used as a stake, also known as a stake, to validate transactions and expand the blockchain, as BTC-ECHO explains. As a reward for this participation, users usually receive interest and, depending on the provider, additional cryptocurrency units. Staking thus allows participants to generate passive income from their cryptocurrency holdings (stakes), similar to dividends in traditional financial investments. The dividends earned through staking are often in the upper single-digit percentage range – and beyond -, as financial expert Christine Kiefer notes, but cryptocurrencies are often subject to greater price fluctuations than stocks, for example. The amount of staking earnings can also vary daily. In addition, the coins are often locked for a certain period of time during staking and cannot be sold – this can be extremely risky if there are significant price movements. In some cases, investors also have to have a certain number of coins in order to be able to do staking, as BTC-ECHO reports. Overall, staking seems to involve greater effort for investors. It requires a certain level of technical know-how as well as the necessary infrastructure. Although there are service providers who can remove a large part of these hurdles, as BTC-ECHO reminds us, this service is of course associated with additional fees. Investors also have to take care of the tax payment themselves when staking.
Is there a better strategy?
Ultimately, both dividend-focused stocks and cryptocurrency staking offer attractive long-term income. While the returns from Bitcoin & Co. can often be higher, staking them also involves higher risks. In addition, the effort involved is often greater. Experts therefore recommend a diversified portfolio that contains both traditional and modern investments in order to keep the risk relatively low while at the same time being able to generate high returns.
Editorial team finanzen.net