Objective | Learn how to build additional streams of income.
Our previous post explains how to use the Dollar-Cost Averaging strategy to make money.
In this post, we will focus on building additional income streams.
What is an income stream?
It is a periodic inflow of wealth that comes from activities such as employment, investment, or business. The income stream can be active or passive.
Active Income
You work hard for the money
Active income is “trading time for money". The money you earn linked directly to the amount of work you do. Examples are salary as an employee or income from self-employed business such as freelancing or commission /independent agent etc.
The moment you're forced to stop working due to retrenchment, retirement, termination, illness, or accident, that income stream will also stop.
For most people, this is their only major source of income. If you're one of them, you better start building some passive income now.
Passive Income
Money works hard for you
Passive income is generated from the assets you own. Examples are capital gain, dividend & interest as an investor, profit as a business owner, rental as a property owner, and royalties as rights owner.
You'll still need to put in plenty of works or resources to build or acquire these assets. The income depends more on assets quality (risk vs return efficiency) rather than your direct involvement in the income generation process. That is, the asset will passively provide you with income without you doing any direct work.
Time is also needed before the assets can become income-generating. At times, passive income streams come with more capital risk or volatility than active income ones.
Since you're the asset owner, you will have more control over the continuity of the passive income stream vs the employment or agent type of active income stream.
What is the easiest income stream to build now?
For people who spend most of their time earning only active income, the easiest passive income stream to build is by investing a small amount of money monthly into an investment strategy like the one mentioned in my previous post.
This strategy has a yield that is sufficient and has a high probability of the targeted return based on historical performance record.
Below are the passive income streams generated.
Capital Gain
According to past performance, the Ewpple ETFs portfolio can produce a capital gain of an average 7% – 9% per year on a long term basis. The return will even be > 10% during the recovery period after a market crisis.
Dividend
Besides capital gain, all ETFs in the portfolio also pay dividends of 1.3% - 4% per year.
Interest
Bond ETFs pay interest in the form of dividends. Their yields are about 3% per year.
Create your own cash flow
Passive income cash flow can be generated by
Immediate method
Sell and realize the capital gain or receive cash dividend distribution.
Future method
A better method is to reinvest the gains & dividends back into the investment portfolio. This reinvestment strategy can generate more returns similar to the effect of compound interest.
You should also invest your current active income regularly while it's still incoming into building up the passive income assets.
In times of needs or upon retirement, you can sell partially and regularly like drawing down a salary. Any unsold balance will continue to compound and grow in value.
“The most powerful force in the universe is compound interest.” - Albert Einstein
You will NOT make any money by merely reading this post. You need to take action.
Assignment
Question | Do you want another passive income stream?
If yes, please feel free to contact me at ewppleblog@outlook.com.
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