Passive Income – How Do We Generate?

In our quest for financial freedom, we tend to come across the term “passive income” very often. So what exactly is passive income and why do so many people desire to have some form of passive income?

Passive income, according to Wikipedia, is defined as “an income received on a regular basis, with little effort required to maintain it.” In other words, once we have established the income stream, we do not need to devote much attention to maintain that stream of income.

A Common Misconception Of Passive Income

Having said that, some people may have the misconception that creating passive income is “easy”, given that little effort is required to maintain it. However, in most cases, it may not be as “easy” as it seems.

This is because even though little effort is required to maintain a stream of passive income, it may take a bit of hard work to generate that source of passive income in the first place.

Take for example, an author who receives passive income in the form of royalties from the sales of one of his bestseller book.

Initially, when writing this book, the author probably has to devote considerable time and effort to write and edit the book. It may take him months or even years before he is able to complete the masterpiece. In other words, hard work is involved in establishing this source of passive income.

However, once this book has become a hit with the readers, sales of this book is likely to occur on a recurring basis for some time, generating a constant source of income in the form of royalties for the author. At this stage when the passive income source is established, little effort is required to maintain it.

Common Sources Of Passive Income

Below are some common examples of passive income:

  • Rental income from properties
  • Interest from bank deposits
  • Royalties from intellectual properties such as music, patent, computer, software & books (including e-books).
  • Income from businesses where direct involvement is not required
  • Dividends & capital gains (profits from buying and selling stocks) from stocks

Even though there are many possible ways to generate passive income as seen from the numerous examples above, some of these examples may not be applicable for most people.

Take for example royalties from intellectual properties. Unless the person has the talent to create products that consumers desire, generating passive income through royalties is only reserved for those who have business acumen.

In addition, in places where the price of properties are relatively high, generating passive income through rental income from properties may not be accessible to most people, given that one has to fork out a huge sum of money for the down payment of properties.

Best Way To Generate Passive Income For The Average Person

Even though we can easily generating passive income through interests from bank deposits, the interest rates are usually way to low to make this an attractive option.

Hence the best and most accessible way of generating passive income is through dividends from stocks and ETFs (exchange traded funds).

With a little bit of research, one can easily generate dividends averaging between 2-5% by investing regularly in a well-diversified ETF. What’s more, if you time your purchases and sales of the ETFs, it is possible to generate extra income when you sell your ETFs at a profit.

In addition, you can invest in real estate in the form of Real Estate Investment Trust (REITs) in the stock market with little capital and receive rental income regularly.

If you would like to learn how you can invest successfully in the stock market, do check out some of our investment articles below:

Alternatively, you can cut short your learning curve by attending our complimentary 3-hour stock investment workshop.

About your author

</p>
<p><center>Adam Khoo</center>

Adam Khoo

Chief Trainer in Wealth Academy™

Adam Khoo is an award-winning Singaporean entrepreneur, best-selling author, professional stocks & Forex trader and peak performance speaker. Adam conducts Wealth Academy™ Program on a quarterly basis to educate the public about value momentum investing using deep fundamental and technical analysis approach.

Disclaimer

Any content in this presentation should not be relied upon as advice or construed as providing recommendations of any kind. It is your responsibility to confirm and decide which trades to make. Trade only with risk capital; that is, trade with money that, if lost, will not adversely impact your lifestyle and your ability to meet your financial obligations. Adam Khoo Learning Technologies Group Pte Ltd (AKLTG) and its associated trainers are not liable for any losses incurred from your investment activities. Past investment performance is not necessarily indicative of future performance, even if the same strategies are adopted. All forms of investments carry risks. Such activities may not be suitable for everyone. This course presentation is not meant to be a recommendation to buy or to sell securities nor an offer to buy or sell securities. The publishers of Adam Khoo and AKLTG are not brokers, dealers or registered investment advisors and do not attempt or intend to influence the purchase or sale of any security. AKLTG does not guarantee the accuracy or completeness of the information displayed. This is shared purely for educational purposes only. 

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

Other articles you might be interested:

Is Investing Risky?

When it comes to investing in the stock market, most untrained investors find it risky and get ‘burnt’ because they invest without knowing the fundamentals of the company and the stock market.

Is Investing Risky?

When it comes to investing in the stock market, most untrained investors find it risky and get ‘burnt’ because they invest without knowing the fundamentals of the company and the stock market.

Rising Wealth Inequality And Why It Should Concern You?

In Singapore, the top 20% of the population owns about a staggering 73% of Singapore’s wealth according to an estimate whereas the bottom 20% of the population owns only 1% of Singapore’s wealth.

Market Bullish But Short Term Overbought

As you know, a breakout from resistance/consolidation is a very bullish sign. Yes, US markets are indeed in a very bullish phase right now However, unless you have been long already, I would caution jumping in right now and buying at this breakout.

5 Highly Effective Ways To Grow And Bulletproof Your Wealth (Part 2)

At the bare minimum, we would want to ensure that rate of return on our savings is at least equal or higher than the rate of inflation. This is crucial because inflation generally causes the prices of most things to rise over time.

More Jobseekers Than Job Openings In Q2

If you have been keeping abreast of the local news lately, you would have noticed that the employment situation in Singapore have turned for the worst.

A Candid Interview With Most Preferred Investment Speaker, Adam Khoo

Adam Khoo Learning Technologies Group (AKLTG) was voted the “Most Preferred Financial Educator” at the ShareInvestor awards of 2016. We sat down with professional stock investor and chairman of AKLTG, Adam Khoo, to seek his thoughts on how investors can maximize their returns on their investments.

5 Highly Effective Ways To Grow And Bulletproof Your Wealth (Part 1)

As the high costs of living in Singapore has seemingly become the norm (we are ranked the most expensive city to live in for the third year running), are there better and more effective ways to grow our wealth?

The Single Most Effective Way To Become Wealthy

Interestingly, if you invest early you could be getting more returns using less capital than if you were to start later. How is that possible?