This is a great question, actually.
To me, passive income activities become non-passive when there is too much active time taken to generate and manage the activities that generate the passive income; or to manage the passive income itself.
I share much about two general types of passive income, which are:
- business passive income, where you build offline and/or online businesses, hire and delegate using processes, technology or people, to earn money for you even when you’re not working in the business (anymore or as much as before)
- investment passive income, where you invest your savings into dependable investment vehicles to work harder for you and make more money for you at a % return of investment (ROI)
Is investing passive?
Both aren’t exactly fully passive-passive, for example investment passive income.
Of course, even if you invested into index funds, dividend stocks and REITs, you will still have to
- view your portfolio and adjust / rebalance your portfolio periodically
- read and maybe respond to emails from your broker(s) and bankers
- give instructions
Maybe almost-passive for those who do it that way; but you can also go the extreme end if you decide to read and research investment 12+ hours a day haha!
So if you’re the sort who wants to research a lot and spend more than 4++ hours a day on these activities, technically it’s already part time work.
But of course, if you like it a lot and it’s natural to you…does it count as well?
I leave that for you to decide.
Note: But to reach this level, you’d probably need a good chunk invested (to get $50K dividends a year on 5% ROI, you’d need at least $1M invested).
Good problem once you’re here if you ask me, heh.
Can businesses be truly passive?
For business passive incomes, it’s not as straightforward, because with business, many things can happen from a operational standpoint eg
- health issues
- PR nightmare
- vendor issues
- product issues
Anything can happen, anytime…and often without much warning.
Bloody good managers and stable business
If your offline business or online business is fairly stable and profitable, one of the best ways to make it as passive as possible, other than hiring and retaining good workers or freelancers, is to hire a bloody good manager.
Not a bloodthirsty mad bastard, but a bloody good manager.
A bloody good manager is a person that
- that doesn’t thrive on creating drama/politics and making things go upside down
- knows what the business needs and how to get it done in a consistent, sustainable basis
- communicates clearly
- fair, transparent and open
Yeah, it’s hard to find such good people, and normally I promote internally rather than bring in “external” managers to manage.
The “most” passive income stream?
40 year old me today believes that the close thing to passive passive income ie hands off as hands off can be is either of these 3:
- A well-oiled business with clear processes and management where the business has zero reliance on me, and still grows year on year.
- Continuously purchase index funds on a regular basis (where the dividends automatically gets banked into your bank account) (this can be for similar investment vehicles such as fixed deposits). This approach is good for most people.
- Trust with wealth management*. This is my ultimate end-funnel where all my investments and money go, and a set % portion is carved out for me and my loved ones to live on; and another % portion is to reinvestment to keep growing and counter inflation.
I’m the founder and writer here at NigelChua.com; as well as serial entrepreneur, therapy business entrepreneur, digital entrepreneur, investor and also happy husband, father and Christian.
Started and sold off a business for 7-figures; built another 7-figure one and growing it further, plus building/investing into other businesses and investments as well as advisory works.
Nowadays I share and teach entrepreneurship, financial independence, retiring early as well as building and living a life you love.