Passive Income

A passive income is the closest you’ll get to a free lunch. 

Have you ever wondered how some people live well and seem to have all the time in the world to do the things they like without selling their time for a miserable wage that doesn’t even keep up with inflation? 

Passive income solves the problem of being income-rich and time-poor where you have no time to enjoy your spoils.     

What is a passive income?

A person with a passive income receives an income on their capital saved through interest payments on a cash deposit account, and they receive yields on fixed-income securities. They also receive dividends from their stocks or maybe rent from properties. 

So, people with a passive income derive an income without selling their time. They let their savings, and capital do all or most of the work while they spend time doing what they like.  

Building a passive income portfolio

People with passive income portfolios typically own combinations of financial assets, whether it is interest on a cash deposit account, the most liquid asset. Passive income portfolios will also invest in a combination of yield-paying bonds, stocks that pay dividends and rental property. 

The term high-risk high reward applies to a passive income portfolio

Passive Income

The 2024 dividend aristocrats list is the creme de la creme of dividend growth stocks that have provided 25 years of dividend increases.  

A passive income portfolio should own dividend aristocrat stocks, defined as stocks in the S&P 500, having at least 25 years of dividend increases and meeting minimum size & liquidity requirements.

But stocks are more volatile and riskier for your capital than bonds.

When a bond maturity date expires, investors receive their capital plus the yields. Dividend aristocrats could underperform the broader index over the long term, leading to capital loss.

US Treasury Bills the low-risk passive income 

Bonds and fixed-income investments also contain risks of default and maturity risks. 

So, corporate junk bonds pay investors higher yields than investment-grade bonds with top credit ratings to compensate for default risks. 

Treasury long bonds 20 to 30 years, Treasury Notes 2,3, 5, and 10 years pose a maturity risk in a rising inflation scenario where bonds with long maturity are worse impacted by rising inflation over the maturity life of the bond.

Investors demand higher yields to compensate for higher inflation, but that means the market value of the bond portfolio falls, bearing in mind the bond price and yields move in opposite directions.

US treasury bills with maturity dates ranging from 4,8, 13,17, 26 and 52 weeks provided investors with the lowest risk passive income, better than interest on cash deposit accounts. The yield on a six-month treasury bill pays over 5%.

Passive income and currency risk

USD lilley to remain top performing currency. Western kingpins remain determined to keep US hegemony with USD on the throne, underwritten by the latest billions of dollars to finance multi-front wars.

So passive income could be about owning dollar-denominated dividend aristocrats and T-Bills if you think the US remains the top dog after WW3

Leave a Reply

Your email address will not be published. Required fields are marked *