Types Of Passive Income And Their Differences


types of passive income

The appeal of passive, online income is quite exciting. It really is “no work”, so how can it possibly be bad? In reality, it is sort of a joke in that it is simply not truly passive. Most of the income generating “passive income” lists mention open a bank account, for instance. And yes, this will probably earn you some modestly passive income (though not much) but guess what you are looking for something a bit more substantial…which is where the true passive growth potential lies. And there’s the real secret to achieving true passive growth online.

Here’s how you can use the power of compound interest to multiply your earnings month after month and into the thousands, even. You’ve probably heard of compound interest…well, the great thing about it is that it doesn’t have to be work. And compound interest IS work…it’s a principle which states that the more you invest for the same monetary value (in our case, funds raised to invest in your retirement accounts), the greater your monetary earnings will be over time. How does this work you might ask? How can somebody expect to receive a check from their retirement account when they haven’t actually “invested” anything?

A bottle of wine

There are two schools of thought on this topic. The first school teaches that one way of making passive income is to invest for years in low paying commercial ventures with poor expected returns, and then let them run wild, collecting the profits with no effort at all. The second school of investors believe you can make money by investing in profitable businesses that have great long-term returns…but you must also learn how to make money through investing in low risk/low return ventures. Which school of thoughts is right for you? Which strategies will produce the results you desire?

The short answer is: It depends. You must find out which passive techniques work best for you and combine them to build your income. Here’s a great thing to think about…

There is a technique known as REITs, or real estate investment trusts. This is a great way to make passive income from investing in commercial properties. All these businesses are organized as partnerships, which means that you, the investor, will receive a percentage of the profits from the investments (profits are typically tax-free). This is a very lucrative method for the investor as profit levels are generally higher than the returns on stocks, mutual funds, and other traditional investing avenues. The great thing about this type of investment is that the profits can be used in any way that you see fit.

A screen shot of a computer

One example would be to use your dividends to purchase additional properties. Or you could use it to buy discounted property which you can resell to the public for a nice profit. If you want to use your passive income for more than one thing you can do that as well. Many investors choose to put their dividend yield into their retirement accounts. If you are looking for an investment that has long term value you should look into REITs.

Conclusion 

When you are developing your portfolio income you should pay close attention to these different types of income streams. Choose one that fits your lifestyle the best and move forward from there. By keeping all of these different types of income in your money management tool you will be able to ensure your financial future is stable and secure.

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