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.