An investment portfolio generates income. Passive income requires some upfront work but earns the investor passive income with little ongoing effort. Depending on the type of portfolio, a physician could earn enough to live a comfortable lifestyle with a healthy mix of assets.
A decade later, after I grasped the concept of personal finance, I managed to continue earning passive income from my investments. Passive income still works, and perhaps it’s easier than ever to make it happen.
This article won’t be a tutorial. It summarizes my investing habits and my thought process regarding passive income investing. I wish I didn’t have to write about passive income. It’s only valuable to me because I’m not too fond of the traditional work I do in medicine. It’s a way for me to sustain a lifestyle away from earned income in healthcare,
An essential concept of passive income is the return on investments or the rate of return. If I lend my money to someone, I might get 8% back. On a $100.000 investment, I might earn a gross passive income of $8,000 per year.
There are many investment options:
- real estate
- individual stocks
- hedge funds
- index funds
- currency trading
- money lending
- startup investing
Real estate investors make 10-15% a year on their investments. Stock traders might earn in the 10-12% range. It depends on luck, how good you are at it, and how much time you dedicate to the craft.
With a large enough investment portfolio, the rate of return will matter less. Passive income from a $100k portfolio at 8% comes out to $8k per year. A $200k portfolio would return the same amount of earnings with a rate of return of only 4%.
$100k * 8%/year = $8,000
$200k * 4%/year = $8,000
$400k * 2%/year = $8,000
This type of investment feels intuitive. I don’t believe that they are always going to go up. Nor do I think they are a set it and forget it kind of investment. Nevertheless, it’s relatively hands-off.
The growth of the assets might be somewhere in the 2% range, and the dividend returns are another 2%. If nothing else, securities investing is an excellent way to compete with inflation.
$500,000 isn’t hard for a physician to accumulate, and with a 4% return, that’s $20,000 per year of gross income. Enough to live a decent lifestyle in most countries. Or it will augment your part-time work as a physician.
Real estate can appreciate, offer a roof over your head, or earn you rental income. It’s versatile. You can buy it in cash or use the bank’s money.
Real estate can be a piece of land, an apartment, an apartment complex, a single-family home, or property you own abroad. Perhaps as a way to plan for your retirement.
You can invest in real estate through REIT index funds as well. These are interesting. I do a little bit of this, but it doesn’t quite offer as much control over the investment.
Forget for a minute what private equity means in the popular vernacular. If I invest in my friend’s rock climbing gym, that’s private equity. I can buy a $10,000 commercial oven for my uncle’s bakery in exchange for some profit-sharing in his company.
If my nephew wants to start mining cryptocurrency, I can help him buy the mining equipment for some profits in this venture.
I can also offer my healthcare consulting work for free in return for shares in a startup.
My physician buddies usually respond with the rebuttal that they would need millions of dollars to replace their current income. And if your goal is to have a physician’s lifestyle on passive income, it will take a lot of money.
I could live a decent life with $300k invested in a portfolio with $18k annual returns (6%), but that would be in Mexico.
When I no longer worked full-time, I lived a much simpler life. And with some supplemental income from my online and consulting work, I don’t need much more than an extra $1,000 per month to have a great life in the US.
My passive income portfolio doesn’t have to support my lifestyle in a city like Los Angeles. My goal was to afford to live in Portland first.
Once I have accomplished that, and if I still have some interest in working, I can continue to accumulate wealth, invest, and reinvest the dividends.
My assets would continue to grow, and perhaps one day, I can afford to live in Colorado. Next, I can aim for LA or SF, or NY.
2022 & Onward
It’s 2022, and some people have grown their wealth because of their real estate portfolio. Others because of their digital currency investing.
For others like myself, I have taken my clinical practice online and chosen to live in Spain. I can earn US dollars and spend euros in a lower cost of living country.
Inflation is coming, but most people won’t even feel it. We’ll continue to work, earn money, and pay taxes. Home prices, stock prices, and retirement accounts tend to keep up with inflation.
For most of us, the opportunity to earn income from our skills is growing, not shrinking. Don’t want to see patients? Do healthcare consulting. Don’t want to do consulting? Write medical articles. Don’t want to write articles? Become a health coach. And so on.