What is passive income?
I read all sorts of lists of ways to make passive income. Like,
Stocks
Bonds
ETFS.
Write a book
Sell stuff online
Blog
Etc.
And it's just sooo boring. So repetitive. They all say the same basic thing over and over again. I like to look at passive income in the form of categories, which we will get to in a moment.
So much of content related to passive income is all about selling you on the dream of passive income. “Why should you look for it?” But I don't need that! And I think you don't either. It doesn't take a visionary to see that making money while you sleep is awesome. What I feel like is more lacking is actually ways to make money. I guess that part is because it is hard.
I mean, if it was easy, everyone would do it. First, let's talk about three broad categories: Financial assets, Physical assets, and Digital assets.
Financial Assets
Financial assets are, in a way, the simplest forms of passive income. You buy them, they produce income. Examples include stocks and bonds, among countless others. I’m sure you know what a dividend is though, unless this is your first personal finance blog. In which case, thanks for choosing me, I'm honored.
Some people like to talk about dividend stocks in particular. This can be a whole topic in and of itself, but my general recommendation for most people is to just buy a few index funds and hold on to them. Something like VOO or VTI will pay some dividends, but it is primarily a general index and not a dividend index. For some ideas though, and not a recommendation, here are a few dividend ETFs I hold:
OUSA - U.S. Dividend
FDD- European Dividend
SPHD - S&P500 High Dividend Low Volatility
IDV - International Dividend
IHD - Emerging Markets High Dividend
Physical Assets
Next, let's look at physical assets. There are things like real estate, rentals, rental properties, other physical items you buy and rent or lend to other people. Etc.
Personally, this is an area I am still working on. For real estate, particularly in California, where I am from, real estate is very expensive, and often doesn’t really cash flow. In other words, you make money as the value of the property increases, and not on the rent you get from renters.
One way to get around this is to invest in a REIT. A REIT is a bit of a hybrid between a financial asset and a physical asset. The REIT should perform more like how real estate performs vs how the stock market performs, so it can be a great way to further diversify your investment portfolio. Additionally, you can buy REITS via a ETF, so just the price of a share is your only barrier to entry. True, you can’t really leverage in the same way you can with traditional real estate. But REITS are also much more passive than traditional real estate.
Additionally, there are also options to set up a vending machine, etc. I’m not an expert on this by any means, but there are plenty online. If you want some content about managing a laundry mat for example, I recommend the channel investment joy.
Digital Assets
Digital assets are often quite different from the first two categories. With stocks, you typically have dividend income, capital gains, or both. It's all set. With real estate, you might have more options, short term vs long term rental, vacation rental vs permanent tenants, etc.
With digital assets, there is a world of choices.
There are display ads, affiliate sales, referrals to an active business, host read ads, dynamic ads. Etc.
Digital assets can be fun as well, as often times they are the least capital intensive of the 3 options. Buying stocks and other financial assets takes money! Likewise, if you are building something physically, it likely will require money as well. But digital assets, you may be able to create something for free, or next to free. Just as an example, my bitcoin blog was run without spending a penny on anything!
Sure, it may not make all that much nowadays, once my publishing became less frequent, my ad revenue decreased. And it is possible if I put more money into it, I could have gotten more out. But it is nice in my mind to have an asset that will hopefully keep generating a little income with no effort on my part.
Summary
I think this framework is a super useful way of thinking about passive income. Instead of a stream of consciousness list of ideas, consider grouping your ideas into these categories. I think it will help your mental organization as well as your content, if you present information about passive income.
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