I’ve discussed passive income many times because it is one of the things that I believe dearly in. Once you reach the point where your portfolio generates enough every month to pay for your expenses and even a little more (for travel, etc), then you really have reached a great point. From that point on, accumulating becomes more about gravy and a bit more luxury but you know that from that point on, you do not depend on a job or on someone else.
What is passive income?
There are many different ways to define passive income but I think my definition would be: “Income that is generated no matter if you came in to work or opened your computer“. I would not say that passive income requires no work at all because the truth is that passive income usually requires some level of work. Even if you own stocks, you will usually need to do a minimum amount of research to help you decide which stocks to buy and which ones to sell. But it is passive because you will be receiving more or less the same income even if you are gone for 2 month trip in Asia.
How to build a passive income portfolio?
I’ve discussed the idea of starting a passive income portfolio with $5000 or even less and truly believe that you can start no matter what your income is. It’s all about discipline and setting money aside. As long as you are working on improving your net worth & passive every month instead of focusing your attention on other things, you are probably headed in the right direction.
What should be included in a passive income based retirement?
The one thing that we discuss most is having a passive income portfolio that includes dividend stocks but many other things can also be included in your passive income. Here are a few:
-Real Estate (it had some downs recently but has proved to be a great source of steady income over the years): Real Estate can be purchased through many different ways. You can buy a REIT, a REIT ETF, and even buy physical residential or commercial properties. It really depends on how much money you want to put into this segment of your portfolio.
-Fixed income: We are big fans of Fixed income ETF’s and while they do have some flaws, they do generally offer better returns than buying the actual bonds. But in both cases, owning some bond exposure is great because it will help you diversify your holdings. Rarely do both equities and fixed income securities suffer at the same time.
-Physical or Online Business: Buying websites might not be easy to everyone, we have discussed how great the valuations are. In the same way, you could own a small business and it could provide with some passive income. The big key here for the business to qualify as passive income is to have someone you trust to run the business. If you are stuck working there every day, then it is not truly passive income is it?
-Other financial products: Depending on your financial situation, it might make sense to buy an annuity or another product that will provide you with income every month for a defined or undefined period of time.
So start early
It does not make sense for someone with $5000 to invest to start diversifying into all of these different types of passive income. But hopefully, over time, you will accumulate enough (probably not worth considering before you have $100,000) to start diversifying your sources of passive income.