Passive Income Investments: Make Them, Live Better and Retire Sooner

If financial freedom is your goal, then passive income investments should form the basis of your portfolio. They are one of the few assets that generate cash without having to be sold. Many who use a “buy low, sell high” strategy will look wealthy on paper, but still feel poor. Despite their stock accounts growing, they never seem to have enough money in the bank. That’s because they can’t actually touch their investments unless they sell. Their holdings have little use until retirement. Until then, they’ve got to rely on their job, spouse or small business to pay the bills.

Investing for passive income can apply instant utility to your assets. They spout off revenue that you can use to supplement or even replace your employment earnings. They’re ideal for people who want to increase their cash flow. Passive income investments are also crucial to achieving financial freedom. They can be made by any person at any age; there’s no time too early to start.

What are passive income investments?

Passive income investments distribute consistent revenue, preferably monthly. They can include:

  • Real estate investment trusts (REITs)
  • Mortgage investment corporations (MICs)
  • Mortgage real estate investment trusts (mREITs)
  • Peer-to-peer lending
  • Income funds and royalty trusts
  • Income ETFs
  • Rental properties

Here’s a list of income producing assets.

The relationship between passive income investments and financial freedom

Passive income and financial freedom are inherently intertwined. One results from the other. The latter occurs when the passive income from your portfolio exceeds your expenses. When your investments pay for the lifestyle you want, you’re financially free. For example, if your assets pay $6,000 a month but you only need $5,000 monthly.

The concept is subject to each individual’s wants and needs. There isn’t a dollar amount that makes you financially independent. For instance, a family of five might require more income than a bachelor does. However, that same bachelor could also live lavishly. He may not be content with earning just enough to cover food and rent. What one person considers financial freedom will differ from the next.

People strive to reach this goal for various reasons. Some just hope to quit their jobs. Others don’t want to be dependent on a boss or worry about getting fired. In my case, I became financially free at age 26, three years after discovering passive income investments. However, I stayed employed for another couple of years because I found my work stimulating. Almost everyone’s objectives revolve around flexibility, choice and happiness. Nobody wants their hand forced by money.

Passive income investments can create a legacy

Unlike many other assets, passive income investments are built to last. Consider the common retirement strategy, for instance. Most people plan to have a certain amount saved and invested, which they can then draw on in their golden years. They might aim to have $1 million in assets by age 65. They can then withdraw $50,000 a year for 20 years before relying on government assistance. If they’re lucky, they won’t die before their money runs out. They might even be able to pass some of it on to their kids.

Making passive income investments can allow you to avoid that fate. You don’t have to deplete your capital. For example, if you had $700,000 in assets that paid an annual cash flow of 7.5%, you’d earn over $52,000 a year. You could use that money to live without drawing on your principal.

The utility of passive income investments

There are numerous advantages to making passive income investments aside from retirement planning and financial freedom. First, having a monthly revenue can allow you to invest more often, thus compounding your portfolio’s growth. Reinvesting your dividends multiple times gives you a mathematical advantage over someone who can only do so a couple of times a year. As you acquire more assets, you’ll also be paid on different days of the month. You can therefore invest even more frequently and capitalize on what Albert Einstein once called the eighth wonder of the world: compounding interest.

That was the greatest benefit I received from focusing on those assets. The velocity at which I invested turbo-charged my portfolio, causing it to grow faster than ever. I don’t think I could have had the option to retire at 26 if I didn’t follow that strategy.

Second, your passive income can supplement your earnings if you incur unexpected costs or emergencies. It can also help if you lose your job or switch careers. And if you go beyond your budget in a certain month, you’ll be grateful for another revenue stream to cover the bills.

Third, I’ve found that passive income investments are easier to manage. Before switching to this strategy, I stressed when the price of my stocks decreased. I checked the markets several times daily hoping for a rebound. But since income investors focus on revenue, there’s less reason to fixate on capital gains or losses. We’re still making money as long as the asset distributes cash. That’s not to imply that due diligence isn’t vital, because it is. However, passive income investors have the luxury of not hinging on price rises in order to profit.

It’s important to note that passive income investments don’t automatically preclude a capital gain. You don’t have to make a choice between making money when shares increase and earning revenue. Many REITs and MICs, for instance, trade on the stock market and can be bought low and sold high (and even shorted). The difference is that they pay investors to wait.

Conclusion

Passive income investments can be great assets, but they’re not the only ones out there. In my view, to concentrate solely on them would be a mistake. However, I didn’t branch out until after reaching financial freedom. My goal was to build enough revenue so I could later take risks. After which, I dabbled in more volatile holdings, like gold ETFs.

As I discuss in this free ebook, cash flow investing was only part of the equation for becoming financially independent. It required a substantial commitment of time, networking and a dedication to perfecting my craft. I also found a niche in financing small businesses and real estate, and began structuring my own deals.

Though everyone has their own strategy, I believe investing for passive income is superior. Its potential for durability, utility and high returns make it a method you should consider.

About The Author

Alexis Assadi

Alexis Assadi is an investor, entrepreneur and writer, who advocates for making high-performing income investments and the lifelong pursuit of financial intelligence. He is a shareholder and director in three companies that provide funding to small businesses, entrepreneurs and real estate projects. His most recent venture is a firm called Pacific Income LP.

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2 Comments

  • John S. Waterman

    Reply Reply February 4, 2017

    Very, very well said.
    Although, and this has nothing to do with your article, but I’ve noticed that although it states that there are other user comments, they are somehow not visible. I keep clicking the comments button, only to be taken to the section where I can write one, but I never see the other comments. Is this meant to happen?

    • Alexis Assadi

      Reply Reply February 4, 2017

      Thanks for the feedback, John. The website tracks links to the article as comments, unfortunately.

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