Everyone loves to talk about passive income. As a wealth advisor, most of my daily conversations revolve around money, investing, and income. The ‘passive income’ conversation is at the top of the list of most-often talked about topics with my existing and prospective clients. Everyone wants it and everyone wants to know how to get it.
Let’s start with the basics. What is passive income? Passive income refers to money earned with minimal effort or active involvement in a regular job. It’s usually generated from investments or business activities that require little day-to-day effort or work from an individual. My personal favorite jargon term for passive income is “mailbox money”.
Examples of common passive income investments include: real estate, bonds, dividend stocks, royalties, or a minority investment in an operating business for which you don’t have any day-to-day involvement. The goal of most people is to create a large enough asset base, to generate sufficient passive income, to support their lifestyle until they die, which in turn, gives them access to one of the scarcest commodity in the world – time!
If you’ve always wanted passive income, where should you start?
Let’s start with the most basic of basic investments – a U.S. Government Treasury Bill. Bloomberg.com reports that a 12 month Treasury Bill is yielding 5.42% annually (as of 9/5/2023). That means, if you have $100,000 burning a hole in your pocket, then you could earn passive income of $5,420 in interest over the next 12 months. That’s $14.85 per day. Probably not enough to retire on :-), but might be enough to pay for that annual vacation. Some of you reading this might have $500k or $1.0mm right now that isn’t being optimized as a passive income strategy. You can see how all of the sudden a 5.42% annual interest rate on $1,000,000 could be meaningful to you.
You need to start somewhere. Perhaps you only have $100,000 you can devote to a passive income strategy right now, but you’re not sure if ~$5,000 per year in passive income is even worth it. Everyone has different goals, but start early and create a passive income bucket. Add to it every year. If you don’t need the income, re-invest it, but if you stay disciplined, your passive income bucket can become real and meaningful to your family.
Those of the younger generation might be looking for growth investments and don’t want income; however, there are many searching for passive income opportunities. Here we highlighted just one opportunity – Treasury Bills, but there are many different asset classes that provide different types of income and growth opportunities that may fit your needs.
If passive income is something you’ve always wanted, but you never knew how to achieve it, give me a call and we can walk through the different options.