Thursday 19 April 2012

Is Passive Income Really Passive?

We are living in a flavour of the month and fashion season of the year world.

Now it’s easy to read passive cash flow this, passive income that – as if all we need is to sit under the sky and money will just drop onto our lap?

Rentals from properties

Even if your tenant never calls you to fix the toilet, and always pay on time every month dutifully into your bank account (of course exist! I am one such tenant) – surely there must come a time when you need to re-negotiate a new tenancy agreement on the revised rentals or find a new tenant? 

Check the new tenant is not an illegal immigrant or have a history of financial offences?

Dividends from stocks

Eh… You don’t need to spend active time researching which dividend stocks to invest in? At what price? 

Some who bought Shipping Trusts because they dangled a higher yield, or invest in “safe” Utility Trusts (Citispring?) got more than 50% hair-cut when they overpaid… And please don’t mention the current yield based on their cost of purchase.

Some have discovered not all REITs are the same even if they all have a REIT name in their nice little brochures…

No need to review once in a while whether the company you’ve invested in is still “steady as she goes”? All dividend paying companies can grow their dividends consistently and be around in the future? Kodak anyone?

Yields from bonds

Corporate bonds can be attractive with the higher yields than sovereign bonds (unless of course you have stomach for Spanish and Italian bonds); but companies have been known to go belly up or default… 

If a state-owned company called Dubai World can default on its bonds during Nov 2009, surrounded by their oil-rich emirates cousins, you tell me how your passive bond selection is more superior than full-time institutional bankers who got their fingers burnt investing in Dubai World debt?

As for sovereign bonds, well… some say we are near a bond bubble with artificially low interest rates… If you have bought 10 year US treasuries at 2% yield, a “small” 1% increase in yield to 3% will mean the value of your bonds may get a hair-cut of 15% or more… 

Selling options 

I don’t know about you, but selling multiple contracts every month to earn the “passive” premiums is most "active” to me!

Try taking a month long vacation without internet access and see if you still will get your regular “passive” income ;)

Interests from bank savings account

Before 2008, it may be possible to live off the bank interests… Now?

By the way, you are the “gold mine” to all the ever so helpful and ever so friendly financial practitioners who are eager to help you channel your bank savings - that are earning negative yields after inflation - to the inflation beating “passive investments” above.  

What? Some of their recommendations are still yielding below inflation? There! You wouldn’t know this if you were “passive”, would you?  

Independent thinking is very active work!

Interests from CPF

Ah! You got me!

I think this is the closest to “passive” we can get. 

Risk free? I not so sure…

Every 4 -5 years, I have to do my “active” duty to make sure we don’t elect charlatans into government.

Free is good! But free education, free medical, free this, free that; and promising something you have not earned yourself is another thing altogether. (For those that want to split hairs... Isn't subsidy another word for free?)

On the other hand, spending other people’s money is a lot of fun! I can attest to that! Spending ah kong’s (company) money while on business trips makes me happy. I lie not!

So is passive income really possible?

Yes! But it’s not free. It’s called outsourcing. Must pay for performance. We can hire a property management company or agent, a professional money manager, a private banker, and so on.

One parting word of advice: We can buy passive; but don’t fall asleep on the wheel!

History is full of regents who deny the throne to their rightful heirs.

You smart; others also not stupid.


  1. Totally true, dude. I think that there's no really no such thing as truly passive income. We all have to "work". Even billionaires do not want to lose their money. Amen.

  2. Ronian,

    I guess that's where the saying - shirt sleeves to shirt sleeves in 3 generations - came about.

    Something for nothing belongs to the realm of fantasy.

  3. How about Pillow Passive Income? Can sleep OK at night?

    1. CW8888,

      Your pillow income strategy is fantastic! Of course can sleep soundly after a "hard day's work" ;)

      Why would we measure and track our performance if the result is not through our blood and sweat? Where's the sense of accomplishment in that?

      The 4 years where you have won back NOT in the same way you have lost is inspiring :)

      It's definitely not passively hold and hope!

      And you did not lose confidence in your pillow income strategy during your down 2008 year - nor switched to passive index funds or ETFs.

      Passive? You too modest!


    2. CW8888,

      Thousand apologies!. I deleted your comment by mistake this morning (before drinking my coffee) when I saw a duplicated comment by you under the Blogger comments summary page.

      Then discovered I deleted the wrong one!!! Your duplicated comment is still at the Failures and Sides Effects post...

      Can you re-post your comment here again?


      P.S. On the bright side, I learned copy paste comments will loose the original link. Always profit from our mistakes! LOL!

      No fairy tale!

      There is Money tree that can grow money as fruits

      Sometime in life, we will reap what we have sowed. In the stock market, if we can do the Right Clicks! it is more than enough to generate passive income for a long time.

      I realized that passive income from stock dividends is fantastic once you got damn right. You don't even need to lift a finger to receive it. Really wonderful!

      Read? One Right Click!!!

    3. Actually, I am the one who made the first mistake by commenting at the wrong post. LOL

    4. Sometime I heard my colics grumble on the size of their bonus. I will tell them to make their passive income bigger than their bonuse thenj they will stop grumbling. LOL

    5. Yes CW8888!

      Nothing beats rewarding yourself with our own "passive" income :)

      If iPhone can improve on their next generation SIRI it will be great!

      Imagine being more "passive": "Siri, click buy Keppel Corp at $XX.XX"


  4. Hi SMOL

    Yes, wholly "passive" income is not possible. It takes time, effort and a bit of luck to get there.

    However, relatively more passive types of income such as interest, dividends, rentals still beats working an 9 to 5 job trading time for money in fixed blocks especially when our minds and bodies cannot take the 9-5 stresses of work life any more :-P

    My own approach is being aware that my next 20-25 years or so of active earned income needs to generate sufficient capital to fund my next 20 years of post-work living.

    Of course, if a disaster such as extinction level event were to happen, then all bets are off :-)

    Be well and prosper.

    1. Panzer,

      Yes, my gentle tease to the reader is to highlight the difference between:

      1) buy and review, and

      2) buy and forget!

      I personally belong to the camp which believe in doing what you love. Getting paid for it is a bonus! Nothing wrong with active income at all ;)

    2. Hi SMOL,
      Of course as a sleeping partner in a business, you also must know who is your active business partner. You don't just go and sleep any where as you like. Or you may wake up at the wrong side of the bed with the wrong partner.

    3. Yes Temperament,

      Too passive or sleeping too soundly can be dangerous.

      Wait people still our pillow we don't even know!



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