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[MoreMore Insights] What is passive income?

Updated: May 28, 2021

As the name suggests, passive income generates income for an individual without active efforts to earn such income. Instead of employment compensation from full-time jobs, passive income is usually generated through investments.

Money generates value, enabling businesses to run, equipment to be bought, projects to be undertaken, etc. Similar to how workers are compensated on their value created for the company, investments are also compensated accordingly with investment returns as they provide an enabling value that ‘make things happen.

This is why passive income requires no active effort to generate returns, as money itself holds value.

Here are some of the most common forms of passive income that requires initial capital investment:

  1. Business investments without personal effort in the management

    1. Ownership of a franchise (e.g. chain restaurants)

    2. Ownership of a business (e.g. local pub)

  2. Real estate

a. Short-term rental (e.g. Airbnb)

b. Long-term rental (e.g. contracted tenant)

  1. Stocks with long holding period/low management effort

    1. High dividend stocks

    2. Investment funds (e.g. superannuation)

  2. Bond, Short-term money market and savings

    1. Short-term loans (e.g. treasury notes)

    2. Long-term bonds (e.g. government bonds)

    3. Saving accounts (e.g. bank account)

  3. Miscellaneous investments

    1. Vending machines

Some other forms of passive income generation that require more upfront labour effort:

  1. Creating a website

    1. Advertisement revenue

  2. Making an application

    1. Passive sales from the app

  3. Writing a book

    1. Passive income from intellectual property

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