Passive Income - What's Your's?

[SeattleBaba]

The bond strategy is a good one, but I have never been able to correctly time it. As for the 10% average return on stocks if you invest long term and stay with it - after 30 years of experience, I call bovine feces on that!

For me, real estate as been the best and the most steady over the long term. Values may have just declined, but my apartment rents are higher today then they were a year ago.

Invest in real estate - you will make your children very wealthy!

[hydrogonian]

Originally Posted by SeattleBaba

The bond strategy is a good one, but I have never been able to correctly time it. As for the 10% average return on stocks if you invest long term and stay with it - after 30 years of experience, I call bovine feces on that!

For me, real estate as been the best and the most steady over the long term. Values may have just declined, but my apartment rents are higher today then they were a year ago.

Invest in real estate - you will make your children very wealthy!

I agree about the stock comment. Most of that drivel is sales propaganda backed by half truths and incomplete analysis...Of course pick the right OVERperforming stocks, and you could make a case for it. But doing that is based on a little analysis and a lot of luck in my opinion..nothing to count on..

Real estate can be good, mostly because it acts like a Blue Chip that wont ever go under due the fact that, as long as you aren't taking out second mortgages, its value will generally follow inflation(assuming the location isn't losing popularity in a depressed economy). If you buy in the right location, it can over-perform. However, while people can get lucky/good at buying in a surefire location, real estate investment isn't a hands off or otherwise simple affair. Also, there are multiple ways that it can go wrong, mostly when you buy. You do have to know a bit about it, both in how to accurately value the property/income and how to manage it. If your talking just about your residence, thats a bit of a different story..In my opinion, I would never trust the management of properties to a company if I was living the cruising lifestyle hundreds or thousands of miles away. No one will care about it like you do. Therefore, I wouldnt qualify real estate investing as a passive way to make income, although I know others that consider it as such. Its just too much work..Although it does beat a 'job' if you are good at it.

[virginia boy]

100% veterans disabilty compensation including 100% free medical and dental.
In the future will have wifes 401k and State gov pension

[barnakiel]

Huh, bonds are OK only as long as the issuer is solvent. If you look at US govt debt figures and the rate at which they are shooting thru the roof you can have some very serious doubts. Sure, the govt may be able to pay this back but if you allow for the inflation generated in this process, you may either gain nothing or actually lose (maybe not all, but I believe a fair amount). This is a blind alley as it is today.

Your passive income should be generated from sources that regardless of their present market value have the capacity to generate income - like real estate. And then you can get additional security from things unrelated directly to financial markets (gold/oil/etc).

You do not want to make a million in a week, what you want is dependable and stable flow of cash into your pocket and maximum security for the capital that generates the flow. And this is neither bonds, nor shares (nor shares in real estate investment funds - unless you want to look at their managers spending their time cruising, while you get stuck with too little to sustain your dream).

b.

[Jetexas]

I've mostly given up in investing. I invested several thousand into mutual funds from all the summers of work when I was in high school. Lost 90 percent of it in the dot-com crash.

Finished college with a journalism degree, and I was too poor to invest for several years, but I watched friends and relatives lose massive amounts of retirement savings in the Enron and Worldcom scandals.

Finally started a Fidelity 401k when I turned 30, just in time to watch the economy crash again. It's currently worth about half of what I paid in over the past year and a half.

Hope to finish my first book by the end of this year, and I'm going to kidnap Oprah and hold her hostage until she tells everyone to buy it.

My best friend was bartending in Austin, and a guy walked up, said he had a "look," and asked if he wanted to be in a movie. He ended up acting with Robert Duvall and Michael Caine. He gets a check every couple of months for DVD rentals and the networks playing it on TV. I haven't been able to dumbfoundedly stumble into anything like that yet. However, if you have the chance star in several major motion pictures, I would say that you'd be set on passive income.

[Christian Van H]

Originally Posted by barnakiel

Your passive income should be generated from sources that regardless of their present market value have the capacity to generate income - like real estate.
b.

If you invested in real estate you have recently lost a full 1/3 of your investments value. If your income comes from real estate rental, please explain how you manage your properties while cruising, without paying someone an arm and a leg to look after them for you? I'm having a hard time imagining trusting someone with my investment while I'm 12,000 miles away in the tropics...

[Rhosyn Mor]

Sterling Hayden said ( and I paraphrase)
if you really want to experience the cruising life, its only possible with no money.
I fully subscribe to that philosophy, picking up work when and where I can.
on A nicely equipped 38 footer we are living ( two of us) on around 300 USD a month, plus about 2K a year for maintenance. WE dont eat rice and beans all the time, and do like to live well. ( last night was duck stew). WE rarely eat/ drink out.
At this level lthere is no need for a real passive income.
For retirement funding ( we are 52 and 47 now) : we have about 1200 pieces of avant garde modern art.

[hydrogonian]

Originally Posted by barnakiel

Huh, bonds are OK only as long as the issuer is solvent. If you look at US govt debt figures and the rate at which they are shooting thru the roof you can have some very serious doubts. Sure, the govt may be able to pay this back but if you allow for the inflation generated in this process, you may either gain nothing or actually lose (maybe not all, but I believe a fair amount). This is a blind alley as it is today.

Your passive income should be generated from sources that regardless of their present market value have the capacity to generate income - like real estate. And then you can get additional security from things unrelated directly to financial markets (gold/oil/etc).

You do not want to make a million in a week, what you want is dependable and stable flow of cash into your pocket and maximum security for the capital that generates the flow. And this is neither bonds, nor shares (nor shares in real estate investment funds - unless you want to look at their managers spending their time cruising, while you get stuck with too little to sustain your dream).

b.

Agree about the cash flow. But if confidence fails in the USA to back their bonds, then nothing else is going to do well either. Your looking at a very tumultuous time if that happens, and most businesses and cash flow streams that have anything to do with the US economy will suffer greatly. So, avoiding bonds for something 'more secure' is a bit of a goose chase as their ability to be confidently traded is the backbone of the banking system, unfortunately. However, land and rents should keep its proportional value better than most else in times of trouble. It wont ever completely bottom out.

But the way the world financial system runs, there is very little that is more secure than bonds. However, you have to be able to value them correctly just like anything else. If you overpay at any point in time, then your sunk regardless. You also have to be able to calculate the risk of failure into the price and profit potential to be able to determine the bonds true value. Most people don't do this correctly. In a free market, there is very little risk free profit. Risk usually cancels profit in an open market, and this point is the price at which assets seek equilibrium. This is the nature of the free (profit seeking) market. Therefore, you generally have to be better than the next guy to come out ahead.

[zeehag]

i have disability income and avoid men without income LOL

[Red Mantis]

Originally Posted by Jetexas

Finally started a Fidelity 401k when I turned 30, just in time to watch the economy crash again. It's currently worth about half of what I paid in over the past year and a half.

I realize it seems counterintuitive, but the market bottoming out when you're in your 30s is a actually a good thing. They say that the secret to making money in the market is "Buy low, sell high." We young guys have before us a very good opportunity to take advantage of the first half of that maxim.

My recently retired parents, on the other hand, are having a hell of a time trying to do the second...

[osirissail]

From your original brief post - "I've seen several references to developing a passive income." - I assume you are referring to how is anybody supporting themselves and the cruising lifestyle while "out there." First off, sailing off into the sunset is no longer free. It costs money, how much, that depends where you sail and what lifestyle you want to maintain. Most all "foreign countries" and islands are going to charge you for the privilege of visiting them. Food, parts, fuel, daily living expenses all add up. So you will need an income stream.
- - I like post #4 as the best way to minimize the need for a large passive income stream. Post #5 is even a better to maybe even eliminate the need if the "mate" has money.
- - If you are visiting islands outside your nationality, you cannot (with rare exceptions) find legal work on land. And anyway, the basic idea is to not work, this is supposed to be "paradise."
- - Normally, as others have listed, Retirement income, Social Security type payments, and interest earned from investments are the primary sources for most retired folks out here cruising. I have all three and can stay out indefinitely.
- - Younger folks may be on a "leave" or sabbatical that still includes getting money or have saved up a "cruising kitty" which will allow them to stay out for a limited amount of time before having to return to the "real world."
- - For long term live-a-boards, Cruising World did a survey and article a decade or so ago that found that if you take the cost of your lifestyle on land and divide by 3 you get a good approximation of the cost of maintaining that lifestyle on a cruising boat.
- - I have seen couples do it all on Social Security payments but most have investment or passive streams from other sources. Getting these passive income streams set up is the key to successfully being able to enter "paradise" - and stay there.

[Alexei]

Now is a GREAT time to get into investments (provided, of course, that the political class doesn't do too many more idiotic things that will stifle economic growth.....jury's still out on that one).

For myself, I've been contributing to my Roth IRA for years, and will continue. Plus I'm contributing to the Thrift Savings Plan (401k equivalent), though I've been less good about that lately. Finally, in another 8 years if all goes well I'll be able to retire as a Navy Commander. That pension ain't too bad at all.

And the Mrs is starting up a business. If that takes off, I guess we can live off the proceeds when she sells it, too.

[David M]

Savings and selling some land overseas. My wife and I are not ready for that though. That is a few years away now.

[hellosailor]

The only guarantees are death and taxes, and many claim to have beaten one or the other on those too.

Bonds are subject in many cases to early redemption. Or, to be being outpaced in inflation and becoming losers. Or, to bankruptcies--even the "GO" government general obligation notes can go under. The more stable and secure the bond, generally the less it pays, and bond insurers also can go under. So bonds aren't perfect, even if there is less volatility and less risk than playing with equities (stocks and the like).

Pick the right stock and you can make 10% in one month, 100% in one year. No bond pays that. But something like 95% of all players in the stock market lose, so the other 5% can win. Only a broker wins on every trade.

If you aren't going to be actively managing your funds, or paying a good broker (what's that? didn't they all lose last year?) to do so, the only really secure passive income source would be something like t-bills or TIPS, and they pay a pittance most of the time.

There are a number of community colleges and other institutions offering "investment" classes to the general public, the best thing you can do is to take one and get confused, ergh, educated, about what the options are for each investment type.

[onestepcsy37]

i would like to answer hydrogonian's post requesting more info on my bond investment.

but first i want to make a general statement. this is my solution to the problem of generating a steady income. it suits my personality. it may not suit anyone else's and that's ok. there are undoubtedly 'better' solutions but they may just appear to be 'better' to you because they suit YOUR personality. so i'm just putting this out there for your consideration. if you don't feel comfortable making my solution your solution then please keep looking, asking, researching, googling, whatever it takes for you to arrive at a solution that suits your personality.

i freely admit that you can make more money investing in the stock market or in the real estate market or maybe even in the commodities market. but i also believe that to make money in those markets you have to devote a good share of your time to those endeavors. i am not willing to invest any more time in investments than i have to. i'm just too lazy. i want to go cruising without constantly worrying about how the stock/real estate/commodity market is doing today back home.

ok. first, the dark side of bond investing. there are two generally recognized ways you can lose money investing in bonds.

1) the corporation (or government) defaults on the bond. (with cd's there is no such worry). you could lose your entire investment in that bond. but in bankruptcy a bondholder has a higher priority than a stockholder, and if there is any money, bondholders would be paid first. in actual practice, high grade bonds rarely go into default and bondholders rarely lose their entire investment. in my case i currently have twenty five bonds/cd's. if they are of equal value and if i lost one completely i would lose four percent of my portfolio. there are days when the stock market goes down four percent. there are also years when the real estate market goes down four percent.

for what it's worth, i have never had a bond default on me. doesn't mean it will never happen, but i tend to stay with higher quality (and unfortunately lower paying) bonds. i have had banks default on cd's but of course the government immediately makes good on them and it's more of an inconvenience than anything; you get your money back but then you have to reinvest it.

2) inflation. each time you buy a bond you will get the current market rate for that bond type. at the moment rates are fairly low. but i've been buying them for the past seven years and i've got rates all over the place, from 3.5% up to 8.5%. a few months ago i calculated that i was getting an overall return of 6% on my investment. now compare that to the inflation rate and you will see if you are beating inflation. i am at the moment. doesn't mean i always will. but bond rates do tend to be higher than the then current inflation rate.

so how do i beat inflation? i don't take all of my earnings out of my investment account. when a bond matures i reinvest that money plus all of the 'unused' earnings that i never took out of my investment account. that way the amount of money i have invested continues to increase.

and while it is true that future inflation makes old bonds less valuable, remember that new bonds are always priced with the new inflation rate built in. and if the inflation rate goes down, as it currently has, my older bonds are actually more valuable than new bonds.

how much income do i generate? a few months ago i calculated that i was getting an average return of 6% (i have a lot of older bonds). so for each $100K i get an annual income of $6K, or $500 a month.

does my passive bond income fluctuate? yes, everytime a bond matures and i have to purchase a new one it will go up or down depending on whether the rate on the new bond is higher or lower than the old bond.

as to bond types, i buy both kinds; corporate and government.

for more information, i recommend googling around using search terms like 'bond ladders'. most of the major investment houses websites have excellent articles about bond investments (but be careful - most of them want you to buy bond FUNDS, and i don't buy bond funds, only individual bonds). and finally there are a number of good retirement forums out there where you can ask all kinds of questions and get all kinds of answers and opinions.

do i regret anything? yes. i wish i had been more bond savvy back in the days of the carter adminstration. remember that far back? inflation was skyrocketing. and bonds, as i have said, always figure in the cost of inflation. i could have bought a 30 year treasury bond paying EIGHTEEN PERCENT!!!! imagine getting eighteen percent on your money for thirty years, guaranteed by the federal government, and then getting your money back? i get sick everytime i think about that lost opportunity....