by Calvin Yeo, Managing Director of Doctor Wealth Pte Ltd
While we are all busy building our careers, we tend to focus only on our take home pay. While that is nothing wrong, we should not neglect investing as that could be very rewarding in the long run.
What Is The Difference Between Active Income and Passive Income?
While we are working in a job or a business, the income we get is known as Active income. When we invest in investments and receive income, it is known as Passive Income. The difference is that you give up time in exchange for money in Active Income while we use money to make more money in Passive Income. You are limited by time in building Active Income, but you are only limited by the amount of capital you have in building Passive Income.
Generating Passive Income with Dividends Paying Stocks
You may have heard many horror stories of people losing money in the stock market. However, the stock market is one of the best sources of passive income through dividend paying stocks. By identifying strong fundamental stocks which pay out a good dividend yield, it is possible to generate a decent amount of passive income. It will be important to look at valuations so that you are not overpaying for the stocks and also to look at the strength and potential growth of the business.
Generating Passive Income with Rental Properties
For more experienced investors with a larger capital to invest, property investments can be a substantial source of passive income by generating rental income. Property investments also allow you to magnify your returns through leverage, which is basically borrowing from the bank to invest in properties. Leveraged investments however do come with a higher risk as a bad investment can cause you to lose more than the amount you put in. Other drawbacks of property investment are that properties are less liquid than stocks and that they require more management. An advantage of properties over stocks though is that the property valuations are generally more stable as compared to stock prices which are more volatile.
Manage Your Investments With Dr Wealth
Managing your investments can be a relatively time consuming process especially if you have multiple accounts. You can use the Dr Wealth investment management system to consolidate all your accounts and help you more effectively manage your investments. You can also key in and manage your dividends as well as rental income.
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About the Author
Calvin Yeo is the Managing Director of Doctor Wealth Pte Ltd (www.drwealth.com), which is an online financial planning platform aiming to provide private bank standard financial plans at affordable prices. He is also a Chartered Financial Analyst (CFA) as well as Certified Financial Planner (CFP).