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Earned vs Portfolio vs Passive
Typically to be financially free, we know that we need to have continuous income to pay for our expenses without putting in any/much effort. In the previous post, we learned about *High income + Low expense = Savings = Assets. Therefore, to achieve financial freedom, we can either remove the whole expense element or increase our income. There are three types of income, earned, portfolio and passive income. Financial freedom is not talking about earned income but portfolio and passive income. Passive income refers to income streams where income is received on a regular basis, with little effort required to maintain the income stream. Examples of passive income are rental from property, and royalties from patents or license agreements. Passive income streams usually require a lot of effort to set up, but little effort to maintain. Dividend and interest income from owning securities, such as stocks and bonds, are usually referred to as portfolio income, which can be considered a form of passive income. Some other types of passive income are: Royalties from writing a book
Royalties from a patent
Earnings from Network Marketing
Earnings from AdSense or other Internet advertisement on your websites
Earnings from a business that does not require direct involvement from the owner (creation of business systems, also referred to as a cash flow muse business) or offering a service that doesn't require the merchant's intervention. In finance, a portfolio is an appropriate mix of or collection of investments held by an institution or a private individual. In building up an investment portfolio a financial institution will typically conduct its own investment analysis, whilst a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value. Portfolio management involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase, how many to purchase, when to purchase them, and what assets to divest. These decisions always involve some sort of performance measurement, most typically expected return on the portfolio, and the risk associated with this return (i.e. the standard deviation of the return). Typically the expected return from portfolios of different asset bundles are compared. The unique goals and circumstances of the investor must also be considered. Some investors are more risk averse than others. When doing a business is not possible for you, go for portfolio income. For individuals, do speak to your financial advisor today. Wait till you have money, you will never achieve financial freedom. Do not worry about that the advisor will cheat you. Learn to say "No" when you feel uncomfortable. A good advisor will not force you to purchase an asset you are no comfortable with. Smile. |
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