3 Passive Investment Income Ways To Financial Independence
By Martin Thomas
Ultimately, your financial future rests in your ability to create passive streams of investment income. The simplest example is the interest a bank will pay you on a cash deposit. These small, typically single digit sums, depending on what part of the financial cycle we are in, can look small. On a $1000 deposit at 5%, waiting a whole year to make $50 is nothing to throw a party over. However a bank is very safe. There is no such thing as completely safe, if you hand over your money to someone, there will always be some sort of risk, however a bank is a very safe place to put your money and getting it back at the end of the term is not going to be an issue unless there is a major calamity of some sort.
Depositing $2 million into a bank at 5% is a little more useful. The return would be around $100,000 and this amount is passive and use able. After tax, your lifestyle would be quite comfortable. The problem of course for most people is getting that $2 million in the first place.
Financial independence is about freedom from work without a corresponding drop in lifestyle. Anyone can drop out of society and live on welfare, as an example, but your life style would be quite appalling, and that is why we work in a job, to maintain at least a comfortable life style.
There are three known paths for developing a passive income stream of cash. All of the following 3 ways will return much better than banks and financial instruments but they require work to set up.
The most labor intensive and I would say in my opinion is the most risky, is becoming a land lord. Buying and renting properties can be lucrative if enough properties are purchased and rented. You would have large loans totaling millions of dollars for all the purchased properties and these properties would slowly over time increase in value, combined giving you equity to buy more property. This is a mom and pop thing that has been a trend recently, but there are many casualties along this path and you would need a robust nervous system to handle the stress.
The second well worn path is investment for capital gains. Again it is very hands on. The idea of investing for capital gains is to purchase objects with existing intrinsic value. What I mean by this, is that the object you intend to purchase for immediate resale would need to be priced in such a way, that the cost after all expenses in the transaction, is lower than the ultimate real worth of that object. Buying and selling investment objects in this way, one can compound ones capital very effectively. For example, if you had $100, you could start with a bicycle. You re-sell that bike for $140 and you have made a 40% gain. If the transaction took just a week, this translates into an annual compounded return of $1.23 million dollars, if you can keep that 40% per week up. It does get a little more complicated, because as you get more capital to invest you need to find higher levels of investment objects, like luxury boats or diamonds or land or property. But many have invested this way for capital gains quite successfully.
The third path is to develop a small business where it is composed of systems. These systems represent a unit of value that is scalable or in other words re-produce able. If for example you had a system that runs itself, where one hour of work fairly consistenly brings in 50 cents a day for a long long time, you can reproduce that leveraged unit of value to create more 50 cent hours. If you put in 1000 hours of work over a 6 month period, then of course, the passive return would be $500 per day. The Internet is particularly well structured for this type of systemized income. A good example is in the link below.
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