Are High Yield Investments “Really” Passive Income?

June 12, 2011 · 0 comments

There a numerous promises of “passive income” out there, especially on the web and late-night infomercials.  The real question is, when is income really passive?  And does this apply to high yield investments?

Passive Income Defined

You can find various definitions of passive income, but to me, passive income in the purest sense means a continual source of cash flows into the foreseeable future that requires no oversight, monitoring or time – and does not subject you to risk.  By this definition, I suppose no such entity exists, right?  I mean, at a minimum, you’re always going to be receiving funds to deposit, have to consider how your asset is performing, whether it’s growing, shrinking or there’s competition, right?

  • Real Estate? Before the internet, real estate was always the vaunted “passive income machine”.  The problem is, there’s a lot of work involved in managing real estate, even if you use a property manager.  We have various friends and family who are landlords and it’s not “passive” by any means.  Good investment?  Sure, but not passive.  We’re also reeling from the worst decline in real estate since the Great Depression, so there is risk to be sure.

 

  • MLMs? A lot of these purported “business opportunities” pop up every few years, but for the most part, multi-level marketing is a scam.  Most people that join these programs end up dropping out and most of the money earned comes from suckering other people into joining, as opposed to selling products or residual income.  If you don’t believe me, try to find 5 people who have stuck with an MLM for 5 years who are actually making money.  I know 5 who all feel scammed and gave up.

 

  • A Small Business? The media portrays the small business owner as living the American Dream.  But many small businesses fail, they require constant oversight and it’s tough to find good work.  Again, not passive!

What Makes High Yield Investments “As Good As it Gets”?

When considering the alternatives and then thinking about simply sitting back and collecting dividends, distributions or other means of cash flows, high yield investments seem to be the best thing out there.  Generally, I consider high yield as referring to an annual cash distribution that exceeds the rate of inflation and yields on other conventional income sources like CDs and Savings Accounts.  These days, they’re not tough to beat.  But even during the days of 5% CDs, there were still some great dividend stocks, Master Limited Partnerships (MLP) , Business Development Companies, Energy Trusts and other options yielding north of 8%.

I tend to prefer these types of high yield investments for the “best” thing approaching true passive income.

What Are Your Favorite Passive Income Investments?

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