Linear income versus Passive income

It is important to realise that not all income is created equal.  Some streams are linear and some are passive.

Linear income is what you get from a job   You work for an hour and get paid once for that hour's work.

Passive income is when you work once and you continue to get paid from work that you're no longer doing.

The way to become wealthy is to have a steady flow of passive income which successful investors can attest to.

Initially, they work long hours, save up enough and then invest.

Later, their money starts working for them and gives them investment returns in the form of capital growth and rental returns.

Rather than getting another job, the wealthy people know they need to send their money out to work HARD for them.

A system for making money is something that takes the emotion out of your investment decisions and makes the results more reproducible.

Over the years, successful investors do things in a certain way that help them become rich while others continue to do things differently and in general, tend to struggle.

To get rich and how to make sure you do, do consider these six simple reasons:

1. Don't wait too long to start investing.
2. Don't let fear stops you from getting what you want, especially in terms of money.
3. Don't wait until you know enough or too much from getting started. 
4. Don't forget to focus on both linear and passive incomes.
5. Don't neglect developing and using systems for making money.
6. Don't be impatient. 

Adopted from an article:

Be a successful investor 

Published in Star Newspaper 9.7.2013

Several investment instruments can bring in steady returns for both young and old.

@ AsiaOne Seeking the Holy Grail of passive income Several investment instruments can bring in steady returns for both young and old. -ST  Aaron Low Tue, Oct 23, 2012 The Straits Times It is the Holy Grail of investing for many of us: Build a big enough nest egg, generate passive income from it and retire comfortably on the steady stream of dividends. Well, it is not just the Holy Grail for retirees these days; now investors young and old want the reassurance of a steady income after the battering our portfolios have taken in recent years. The benchmark Straits Times Index may be up 17 per cent since the start of the year, but not before a roller-coaster ride over the past 12 months that left many of us battered and bruised. Analysts warn that the road ahead looks bumpy, with market movements still likely to be influenced by events and news rather than financial fundamentals. Mr Kelvin Tay, regional chief investment officer at UBS Wealth Management, says many investors want the safe haven of stable returns in an uncertain market. "With interest rates so low, much more attention is being paid to what kinds of steady returns they can get in a market like this," he says. Ms Jane Leung, head of Asia-Pacific at iShares, a subsidiary of asset management firm BlackRock, says that fixed income assets form a valuable core component of diversified portfolios. "They're favoured for moderate volatility, low correlations with other asset classes and stable cash flows." These days investors are spoilt for choice when it comes to investing in income assets. Bonds Probably the simplest of all income instruments is the humble bond. In its most basic form, the bond is essentially a loan made by a lender to a borrower. The borrower pays a lender an interest rate and promises to pay back the money to the lender in full, after an agreed period of time. Bonds can be issued by companies or governments. For instance, you can buy Singapore government bonds or trade in bonds issued by the Land Transport Authority and the Housing and Development Board on the Singapore Exchange (SGX). Mr Brian Tan, director of wealth management at financial advisory firm Financial Alliance, says that if people want safety and a steady income stream, look no further than a bond. The problem is that most bond issues typically come in tranches of $250,000, which put them out of reach for most retail investors. Similar instruments that are listed on the Singapore Exchange include securities such as perpetual securities and preference shares. They also pay a fixed coupon rate every year but differ from bonds in that they have different company rights from bondholders. Companies such as Hyflux and the local banks have issued preference shares through the SGX that pay between 3.9 per cent and 6 per cent a year. Fixed income funds A big disadvantage of buying individual bonds is that the investor is exposed to the risk of the company failing. If the firm goes bankrupt, the investor could potentially lose all the money invested in its bonds. Buying fixed income mutual funds can help get around this problem. These funds are typically managed by fund managers, who use their expertise to select a basket of bonds that generate yield. For instance, JP Morgan's Emerging Market Local Currency Debt Fund invests in debt instruments of various emerging market governments, such as Poland, Turkey and Brazil. Its annualised yield is 7.27 per cent. Mr Tan believes that for retail investors, getting into a fund is probably the best way of getting exposure to bonds. "Most investors don't have $100,000 or $250,000 sitting around to invest in the bonds of just one company," he says. "So funds are a good way of getting exposure." But mutual funds are not perfect. They do suffer from underperformance, depending on the skill of the manager. The other issue is that they charge relatively high management costs, ranging between 0.5 per cent and 1.5 per cent a year, depending on the asset class and the type of fund. A fairly recent type of fund, however, drastically lowers the costs of investing with the fund and mostly eliminates underperformance. Called exchange-traded funds (ETFs), they track indexes, both equities and fixed income, directly. This means that ETFs do not underperform the overall market, but neither do they overperform. Last year, iShares listed four new fixed income ETFs on the SGX which directly tap the Asian fixed income market. One is the iShares Barclays Capital USD Asia High Yield Bond Index. Its yield is 7.55 per cent and it charges a management fee of 0.5 per cent. It has returned 17.02 per cent since last December. Mr Gary Dugan, private bank Coutts' chief investment officer for Asia and the Middle East, says that ETFs should be seriously looked at as an alternative to pure bonds as they are both low-cost and easy to access. But Financial Alliance's Mr Tan notes that fixed income ETFs are subject to the vagaries of the market as they can be traded freely like stocks and shares. Asset management firm Franklin Templeton's director of retail sales for Singapore and South-east Asia, Mr William Tan, says that index products lose the ability to benefit from an additional source of returns through currency management. "In an actively managed fund, portfolio managers are more nimble and able to react to changing market conditions and they can adjust the duration of a bond fund as necessary," he says. High dividend stocks While income tends to be associated with bonds and fixed income instruments, experts also point out that high-quality dividend stocks can also form part of an income portfolio. Mr Dugan says that stocks should form part of any portfolio, even if it is income-focused. This is because some stocks pay higher dividends than bonds, while allowing for potential capital gains. One such hot type of stock is real estate investment trusts (Reits), which have soared roughly 30 per cent since the start of the year. Singapore Reits typically pay anywhere between 5 per cent and 8 per cent in distributions a year. Analysts are mixed on whether Reits are still good buys. Mr Dugan and Financial Alliance's Mr Tan believe they are fairly priced, given the rally over the past 10 months, and they are cautious about buying them. But UBS' Mr Tay says that one should buy Reits based on what they offer and not so much whether prices have risen. "It's really about quality rather than how much prices have run up by," he says. Outside of Reits, JP Morgan Asset Management's global strategist Geoff Lewis says that it is a good time to diversify into solid dividend-paying stocks. "We don't think it's too late in the day to get into the theme of income investing. In the current environment of low interest rates, high yields have thrived even while default rates remain low," he says. "We like firms that can pay a good starting dividend but with the potential to grow both their business and ability to pay good dividends." aaronl@sph.com.sg Get a copy of The Straits Times or go to straitstimes.com for more stories.

Multiple Streams of Income

Dividend Investing - creating a non-stop Passive Income!

He is 18 years old!

5 Strategies For Earning Passive Income

by Mark Riddix

I recently wrote a post on the importance of adding passive income to your income stream. Passive income can make your life a whole lot easier by increasing the amount of money that you earn and decreasing your dependency on your work income. A passive income stream can even shave years off your active working years until retirement. Today, I would like to take a look at a couple of strategies for generating passive income. Remember, passive income is money you make even when you’re sleeping and not doing anything. Some people like to think of freelance work as “passive income.” That’s not true, it would be considered an alternative stream of income, not passive income. These ideas are ones that will be making you money even when you’re not doing anything:

1. Dividend Investing
One of the easiest ways to generate passive income is by investing in high yielding dividend paying stocks. You can buy high yielding stocks like Verizon or AT&T which are currently paying almost 7% in dividends. Real estate investment trusts (REIT) are also great income producing investments. REIT’s are required by law to pay out 90% of their earnings back to shareholders. REIT’s like Hatteras Financial are yielding nearly 15%.

2. Rental Properties
It was quite popular to buy a property and rent one out during the early 2000s. Many property speculators left the market after the real estate market tanked in 2007. Now is a great time to invest in a rental property. With federal regulators tightening up lending regulations, it will be difficult for potential homebuyers to obtain financing for a home. The real estate market will be overrun with individuals looking to rent a house in the future. The rental payments will be a nice income stream for the shrewd investor.

3. Royalties
You can earn royalties for life off of any creative work that you develop. If you are a skilled writer, write a book or a play. Submit your finished work to a publisher or sell it independently. If you are a great singer then you can record a CD. You can market it to a major label or sell it yourself online. Once you have finished your masterpiece, you can collect your royalties. Royalty payments are typically based on sales volume. Remember to obtain a copyright or patent on your work. This entitles you to receive residual income for years into the future.

4. Website
Using the internet as a means for making money has grown dramatically since the 90s. Starting an ecommerce business is not the only way to make online anymore. You can create a website and get paid by ad companies. Advertisers are always looking for new sites to market their products and are willing to pay large sums to do it. You can register with Google Adsense, Yahoo Publisher, Commission Junction, and WidgetBucks. You can either go the route of selling a product on a website or creating an information-based website. This could be considered not passive if you’re actively running the website, maintaining it, and writing content. But, if you hire someone else to manage it, then it could be something that you benefit from in a passive way.

5. Limited Partnerships
A limited partnership is a partnership in which one or more of the partners is a limited partner. Limited partners have limited liability and no input in the day to day operations of the partnership. All income is deemed as passive since limited partners are not actively involved in the management of the partnership. Limited partnerships often require an initial investment in order to participate in the partnership’s profit sharing structure. One of the most popular limited partnerships is a master limited partnership (MLP). MLP’s are publicly traded limited partnerships that pay out quarterly distributions to investors.

Which of these five forms of passive income do you think is the right one for you? Do you have any other good ideas when it comes to ways to generate passive income streams?


http://www.moneycrashers.com/strategies-for-earning-passive-income/#utm_source=rss&utm_medium=rss&utm_campaign=strategies-for-earning-passive-income

How to generate passive income to meet financial goals

Generate passive income to meet financial goals

Ever wondered how your colleague at work, who earns the same salary as you, has bought a BMW while you are still driving your five-year-old Honda City? Chances are your colleague has utilised his or her existing salary smartly to generate passive sources of income, on the back of which the car has been bought.

By generating passive income you can achieve financial freedom and flexibility through the creation of alternative sources of income that can complement your salary income.

People rarely achieve their financial goals and dreams only on the back of their salaries. One needs alternative sources of income that can increase one’s wealth and consumption capabilities. Here we share with you some tips on how to generate passive income.


What is passive income?

The salary you get from work is a direct result of your efforts at work, during your active working life. Passive income, on the other hand, is income that you can generate without having to directly work for it.

For instance, if you invest a part of your salary into instruments that will earn income for you without you spending any time on it, you can create passive sources of investment income for yourself. Apart from the act of investment, you are not directly doing any active work to generate investment income.

In effect, your money works for you to earn more money for no incremental effort on your part. Over time, if you have invested smartly, you can have enough money through these passive sources to make a down payment on an apartment or buy that dream car.

Even if you start small, the idea is that you should start creating passive income for your self. Through the sheer power of compounding of capital, small savings today can grow into a large amount within just a short period of 4-5 years.


When can I start earning passive income?

You can start as early as today! All you need is a regular source of salary income and the discipline of setting aside a part of this salary, even if it is a small amount, towards investment purposes before you start spending your money on your lifestyle or your living costs.

This of course might not always be easy, and depends upon the state of your personal finances and your family situation.

Also, if you are just starting out your career, you might not have the flexibility to invest immediately. To add to these is the peer pressure to spend money on items of conspicuous consumption like the latest mobile phone or a cutting edge flat screen LCD TV.


When can I start earning passive income?

The choice whether to invest or not is of course yours, but please bear in mind the tradeoff in the long term - you can either consume today, or save up to consume for later.

If, however, you are in your middle age, you might not be left with much of a choice and your key goal should be to use as much of your income as possible from your remaining peak earning years to create a source of passive income, which is often the only source of funds for most people during retirement.


What is the tax impact of passive income?

Like your salary income, any passive income that you generate will also create a tax liability for you. Depending upon the source of the income there might be different tax treatment applied. For instance, dividends from equity instruments such as stocks or equity mutual funds are tax free in the hands of the investor.

However, dividends distributed by a debt or a liquid fund will be subject to a dividend distribution tax paid out by the fund.

Further, the tax treatment also depends upon the time duration that you hold an asset or an investment. If you make a gain on a capital market investment, but hold it for less than 12 months, short-term capital gains tax rules will apply.


What is the tax impact of passive income?

If you hold the investment for more than 12 months then long-term capital gains tax rates will be applicable. Similarly, for property the holding period that determines a short or long-term capital gain is whether you have owned the asset for more or less than 3 years.

The tax rates for capital gains vary by the type of investment in question. Sometimes you might also be able to use losses from your investments to offset your taxes from other sources of income.

Whatever be the source of your passive income, you will need to declare it in your annual tax return, and pay taxes on it according to the existing tax rates and rules.


http://economictimes.indiatimes.com/quickiearticleshow/5956325.cms