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Sunday, 20 July 2014

What Passive Income?


There's some emotive words out there that work very well in attracting consumer attention:

Free!

Half-price!

Buy 2 get 1 free!

Bonus pack!



And for the journey towards Financial Freedom, there is this popular "Passive Income" quote that never fails to attract interest and attention.

When we were young, we get an allowance from our parents. To us, this allowance is "passive income". We didn't do anything to earn it did we? But to our working parents, is it passive?

To the mistress of a wealthy businessman, the "housekeeping allowance" may appear passive, but we know there are certainly some activities she has to perform....

Even marry into wealth it's not passive as we need to first be "active" in hooking our partners up. Unless you are one of those mail-order bride or groom...

Quick quiz!

Do you know anyone who gets money from a source without having to do anything "active" to earn this income in the first place? (Besides getting money from parents lah!)



I do!

I know descendents of another branch of my family tree do get annual dividends from Ngee Ann Kongsi - just for having the right surname. Typical Teochew - boys get more; girls get less.

I guess that goes also for those who get regular money from a Family Office or Trust that's left behind by a wise, compassionate and super rich ancestor.

And those who inherited rental properties from mommy and daddy.
 
Now that's Passive Income! Without lifting a single finger, money comes. 



As for all other forms of so called "Passive Income", especially rentals from investment properties, and dividends from equities, is it "passive" really?

Unless inherited or gifted to you by someone, we need first to secure or earn this supposedly "passive" flow of income right?



And that's where we see the difference between shepherds and sheep.

Shepherds are constantly, actively searching for loop holes, opportunities to exploit.

Sheep just passively wait for shepherds to guide them.

Lucky, good shepherds will steer sheep to green pastures. Sheep just surrender their wool for this "service"; shepherds don't work for free.

Unlucky, some sheep may discover belatedly that some shepherds don't just want wool, they want lamp chops too!





33 comments:

  1. wealth formula = asset value + cash flow

    No need to ask how or where the cash flow comes from.

    Mistress doesn't care. Right?

    ReplyDelete
    Replies
    1. CW,

      Mistress doesn't care; but I do care.

      Drug money, child labour money, "black heart" money from skimping on food safety, etc; I do care.

      The Korean ferry incident, - was it worth it to earn more cash flow by adding in more fare paying passengers despite the overweight concerns?

      More passive income to the ferry owner what!? The price for passive? Probable jail term...

      Delete
  2. Yeah. We just got to be in the hands of the Good Shepard. ;)

    ReplyDelete
    Replies
    1. pf,

      That's why I have nothing to add after you have spoken at the oat meal guy's place.

      People only see the calm and grace of the duck above the water level when they see others enjoying "passive income".

      Under the water level, the web feet are paddling like mad!

      Securing is the easy part; MAINTENANCE of my "passive cash flows" is definitely not passive nor fire and forget kind.

      But then, perhaps it only applies to me :(

      Delete
  3. Like planting fruit trees. Fully grown trees required little maintenance by the planters but still need to look at Old Sky Granny's mood.

    ReplyDelete
    Replies
    1. CW,

      No rain worry; too much rain also worry.

      Free must chase away insects and do disease preventive measures.

      Pray big daddy rezoning plans don't affect us... (market interventions)

      And must also stay alert in case others want to take over the trees from us (taken private).

      Delete
  4. i agree with you smol, passive is just a wrong word to use for investing! if like that everyone will be rich and no more poor people around.

    there is a price for every dollar that you get from the market place, many can be terms as risk taking! trader and investor alike.

    let them use the term to draw more investor into the market, let it be, who cares.

    ReplyDelete
    Replies
    1. draw more speculators better still!

      Delete
    2. in the market place, there is risk and rewards, win and lose, no such term as incomes as thought you are employed by the market himself? so the so call passive incomes is still a reward, a win from taking that positions.

      Delete
    3. if one use the word incomes, then loses and draw down will becomes expenditures!

      Delete
    4. coconut,

      I was glad when SGX revealed we got quit a few new brokerage accounts opened recently ;)

      I guess the markets is the few example where the incumbents welcome new members with open arms.

      Must also thank those "full houses" in seminars and talks by ronin shepherds.

      Need to whip up more market exuberance! Dwindling market volume is never good for you and me incumbents :(

      Quite unlike other arenas where we incumbents will be concerned with the increased competition or sharing limited resources with increasing hordes of "new guests"...


      Hey! I went short and you went long the STI last week. Blistering barnacles! You took my kopi! *&*&!!@#$^)*%#!



      Delete
    5. seriously speaking, i don't really care about the small investors or traders, it is the big institution volume that is drying up, no one is pushing the price, i remember fat were so worry about the big boys who were in control, where are they now???

      without the big boys pushing the market, a cup of copi from you is still better than nothing haha...actually no so true, i had been long the market a while already, now its even longer.

      there is a saying, if you can't beat the crowd, joint them.

      Delete
    6. actually i wanted to build and actually did build an investment portfolio during that time i made my big loss, the problem is that i did not cut down my trading volume, not only that i think i actually increase my position size and at the height of euro crises, both side were screaming for margin and thats why i cut my investment at a big loss!

      now its time to build that portfolio again since i've made my money back soon, the ratio is around 50/50. one day it will becomes 100/0.

      Delete
    7. coconut,

      Yup, no fish; small fries also can.

      Oh well, serve me right for poking my head out to the incoming freight train. LOL!

      If people ask me market going up or down?

      I'll poke out my head.

      Now I can confidently say it's going up (for now at least)!

      How I know?

      I just got slapped by the market...

      Talk about crash got sound!

      LOL!

      Delete
    8. coconut,

      For me, I am missing investment property in my portfolio.

      Patience.

      For me, I rather diversify across asset classes. I really am a man-whore or what!?

      Owning 100 stocks won't protect me during 1997, 2000, 2008...

      Delete
  5. SMOL,
    But owning a 2nd property has it's price to pay. Owning Reits are better if not quite as safe. Reits very rarely can go to zero value unless there is a fraud.

    The price you pay for owning a 2nd property is quite "chiat luck".
    No tenant for your property you still have to pay G's property tax, property maintenance, bank's mortgage interest and no GST top-out payment and lesser HDB's utilities rebate. Plus all the hassle of looking after your property and looking for tenant.
    Anyone say rental property is easy passive income? Who says?

    ReplyDelete
    Replies
    1. calm down temperament, calm down haha...

      i agreed!

      Delete
    2. My colleague said outsource to MA then is passive income

      Delete
    3. And yes owning a 2nd property is also the same. It won't protect you from 1997, 2000, 2008..... except that it won't go to zero value like a stock. Really that's the only main reason i think a 2nd property is worth to take all the troubles.

      Delete
    4. not to mention that the prices of property are always one way street, one way up and then one way down!

      Delete
    5. i think only s'pore and maybe hongkong is the only place where invest in property still can play play, if elsewhere, people lost their pants and underwear becos of property investment.

      Delete
    6. Ha! Ha!
      CW,
      your colleague must be talking about owning not 1 or 2 rental properties, i suppose; But tens or hundreds of properties.

      But relax, there are property rental specialists who offer their extra services (taking care of your tenant's needs/problems) which they are not obligated too; after you paid them a month rental for 24-month tenant's contract.
      Some of them do this because hopefully, they will have more and more repeated rental-property-owner clients.

      My son's good friend is one of them.
      CW, you are right outsource to MA without extra cost is worth the 1 month rental payment out of 24-month rental payment.
      Owners are shielded from the tenants "psychology" by the rental specialists. i think it's worth the 1 month payment to them. imo

      Delete
    7. 1. coconut, thanks for calming down our "da ge".

      2. temperament,

      LOL! I didn't know "investment property" is a trigger word for you ;)

      Of course I believe you! You own a rental unit.You speaking from experience; not regurgitating what others have said or wrote.

      Ya hor!? Who says property rental is passive income? Don't look at me... I just wrote a blog post asking "What Passive Income?"

      We same country OK? Don't hit the face!

      Delete
    8. temperament,

      Selective perception is interesting.

      1. I never say switch from equities to property. I only say I would like to ADD property into my existing mix of asset classes ;)

      2. I only said Investment Property. I never said:

      a) It has to be residential.

      b) It has to be in Singapore.

      c) It has to be a rental unit.

      Make a wild guess why I have an interest in languages? I'm not a vegetable; I'm mobile. A citizen of the world :)


      As for REITs versus physical properties, I think I'll write a post on it this week. Thanks for the inspiration!

      A short teaser: Paper assets are not the the same as physical assets.

      Delete
    9. never ever invest properties oversea! unless you are the expert!

      Delete
    10. Agreed.
      Each country has it's own rules and regulations. Some are very peculiar and disadvantage to foreign buyers. Don't just rely on property agents show and tell. If you must invest, engage a competent lawyer to represent you first of all things.

      Delete
    11. coconut and temperament,

      And that's what I was alluding to when I said some talks and seminars are more like slaughter houses ;)

      Why talk about vegetables and mobile when I talk about property? If I buy an overseas property, it's most probably to live-in.

      People complain Singapore too expensive; I take personal responsibility. It's all about keeping my options open.

      You never know when Singapore can be run by goons and idiots...

      Delete
  6. Yeah! Agree with you that many seemingly "passive" income are non-passive at all.

    I guess the key difference about passive income is that it is not directly correlated to the action/time that we've put in for active income (like monthly salary). But again, some might not agree with me on this too ;-)

    ReplyDelete
    Replies
    1. Richard,

      Words don't matter. Our own psychology matters more.

      Some really thought no need do own thinking, just follow others, and passive income will come...

      Like that who will do the working?

      Delete
    2. Follow your bloggers. They are working. Can?

      Delete
    3. CW,

      That's a good one! Ouch!

      You very de bad...

      Delete
  7. Diff ppl diff perspective.

    I quite enjoy my day job. At the moment. To me, I'm active in the subject matter. Great to get paid for it!

    Studying abt investing and structuring a ptf with regular stream of income might be enjoyment to others. Think this is like lego. Maybe that's why it appeals to more boys than girls. Haha!

    ReplyDelete
    Replies
    1. pf,

      Doing what we like and enjoy is a blessing! Getting paid for it is icing on the cake!

      Hence you don't hear or read about Warren Buffer or George Soros having X amounts in Y years goals and then they quit....

      They are definitely not in it to "escape" ;)

      Delete

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