6 ms·

Low cost index funds provided a 16% return in 2020 and require nearly zero effort.

by bwh2 5y ago

fny 5y ago
This is not passive income. This is asset appreciation. Dividends or rent collection qualify as passive income.
- nitsky 5y ago
  These days, with stock buybacks, a portion of stock price increases are actually dividends.
- RivieraKid 5y ago
  It's effectively the same.
  - sethd 5y ago
    It's only income if you sell, at which point it's no longer passive, right? Otherwise it's unrealized gains and not income.
    - Retric 5y ago
      Setting up a passive income by regularly selling stocks clearly qualifies. Unrealized gains are more questionable, but you don’t have to realize gains from other forms of passive income like rental income either.
  - nly 5y ago
    It's really not. Let's say, thanks to your passive investment growth, you can spend 3% of your capital every year and never run out This means $100/mo of recurring, passive income would take $40K in the bank to replace. Even a small passive income is worth huge amounts.
- antb123 5y ago
  unfortunately everything that is above 2% interest in our zero yield environment takes some risk. However I agree. Best for me is EU crowd funding sites for real estate. Typical yield is 12-20%. So called "Hard money". Banks in europe don't touch this after the 80s blow ups. Nexo - popular in the crypto world takes the funds and puts them there (but keeps 2-3%) as well as payday loans for eastern europeans.
- boardwaalk 5y ago
  Can you explain why you differentiate the two (price changes vs dividends)? AFAIU it’s really just that you have to instruct one to be sold to realize it and the other just shows up in your account, but the overall returns, tax implications, and such are basically the same.
  - nly 5y ago
    Not sure what jurisdiction you're in, but the tax implications are not 'basically the same' here in the UK. Capital gains are taxed at 20% and can be offset against personal losses, whereas dividend income is typically taxed at 32.5 - 38%, and that's after the company issuing the dividend already paid corporation tax of 19% on their end.
    - KptMarchewa 5y ago
      That's why accumulating index funds are better option.
      - nly 5y ago
        In the UK it doesn't matter. Even dividends paid inside an accumulating fund or ETF are still considered income and, if held outside of a tax sheltered account, you're supposed to (somehow) figure out how much income tax to pay and declare it. Most people get away with doing this because they use tax sheltered accounts, or the amount would be below their tax-free allowance. Ref: "Accumulation units – the income tax loophole that never was" - https://monevator.com/income-tax-on-accumulation-unit/ https://monevator.com/income-tax-on-accumulation-unit/
    - boardwaalk 5y ago
      The US. Where I believe cap gains taxes apply to both cap gains and dividends. Which honestly makes sense me — either you “cash out” individually or the company does it for you (to pay the dividend). From what you say, dividends seem like a negative thing taxes-wise, so why would any company opt pay them out? I’m sure there’s some intricacy there.
    - 5y ago
thomascgalvin 5y ago
This, 100%. No hustle, no gimmicks, just the same passive investing advice we've known for like thirty years now. If you're in your twenties and thirties, it is absolutely worth scrimping and saving to put as much as possible into a retirement account that tracks the S&P 500, or the worldwide stock market, because this is the single surest way for "normal" people to retire rich.
- nly 5y ago
  There are a lot of people who think that returns are going to be lower going forward due to 1) reduced productivity, 2) more people investing with too much liquidity looking for a home, and 3) high starting valuations. I don't have much of a better idea tbh but I'm always seeking alternative investments.
  - thomascgalvin 5y ago
    That's the primary reason I mention a total-world fund. A lot of people expect the US to be flat for the next few years, with a corresponding uptick in the world market.
    - exhilaration 5y ago
      Can you recommend a total world fund?
      - thomascgalvin 5y ago
        VTWAX is the gold standard: https://investor.vanguard.com/mutual-funds/profile/VTWAX https://investor.vanguard.com/mutual-funds/profile/VTWAX If you don't want to dump $3K in one go, there's VT: https://investor.vanguard.com/etf/profile/VT https://investor.vanguard.com/etf/profile/VT
thesuperbigfrog 5y ago
They do require starting capital which the asker may or may not have. Still, it is a good option if your finances allow.
- RivieraKid 5y ago
  Any type of passive income is generated by capital which you have to somehow acquire, typically through labor. For example, you can use your labor to create a game. Or you can sell your labor and buy stocks in a gaming company.
xondono 5y ago
For 2020 that looks even low. For reference QQQ almost hit 50%.

Low cost index funds provided a 16% return in 2020 and require nearly zero effort.

by bwh2 5y ago

Low cost index funds provided a 16% return in 2020 and require nearly zero effort.

fny 5y ago

This is not passive income. This is asset appreciation. Dividends or rent collection qualify as passive income.

nitsky 5y ago
These days, with stock buybacks, a portion of stock price increases are actually dividends.
RivieraKid 5y ago
It's effectively the same.
- sethd 5y ago
  It's only income if you sell, at which point it's no longer passive, right? Otherwise it's unrealized gains and not income.
  - Retric 5y ago
    Setting up a passive income by regularly selling stocks clearly qualifies. Unrealized gains are more questionable, but you don’t have to realize gains from other forms of passive income like rental income either.
- nly 5y ago
  It's really not. Let's say, thanks to your passive investment growth, you can spend 3% of your capital every year and never run out This means $100/mo of recurring, passive income would take $40K in the bank to replace. Even a small passive income is worth huge amounts.
antb123 5y ago
unfortunately everything that is above 2% interest in our zero yield environment takes some risk. However I agree. Best for me is EU crowd funding sites for real estate. Typical yield is 12-20%. So called "Hard money". Banks in europe don't touch this after the 80s blow ups. Nexo - popular in the crypto world takes the funds and puts them there (but keeps 2-3%) as well as payday loans for eastern europeans.
boardwaalk 5y ago
Can you explain why you differentiate the two (price changes vs dividends)? AFAIU it’s really just that you have to instruct one to be sold to realize it and the other just shows up in your account, but the overall returns, tax implications, and such are basically the same.
- nly 5y ago
  Not sure what jurisdiction you're in, but the tax implications are not 'basically the same' here in the UK. Capital gains are taxed at 20% and can be offset against personal losses, whereas dividend income is typically taxed at 32.5 - 38%, and that's after the company issuing the dividend already paid corporation tax of 19% on their end.
  - KptMarchewa 5y ago
    That's why accumulating index funds are better option.
    - nly 5y ago
      In the UK it doesn't matter. Even dividends paid inside an accumulating fund or ETF are still considered income and, if held outside of a tax sheltered account, you're supposed to (somehow) figure out how much income tax to pay and declare it. Most people get away with doing this because they use tax sheltered accounts, or the amount would be below their tax-free allowance. Ref: "Accumulation units – the income tax loophole that never was" - https://monevator.com/income-tax-on-accumulation-unit/ https://monevator.com/income-tax-on-accumulation-unit/
  - boardwaalk 5y ago
    The US. Where I believe cap gains taxes apply to both cap gains and dividends. Which honestly makes sense me — either you “cash out” individually or the company does it for you (to pay the dividend). From what you say, dividends seem like a negative thing taxes-wise, so why would any company opt pay them out? I’m sure there’s some intricacy there.
  - 5y ago

thomascgalvin 5y ago

This, 100%. No hustle, no gimmicks, just the same passive investing advice we've known for like thirty years now. If you're in your twenties and thirties, it is absolutely worth scrimping and saving to put as much as possible into a retirement account that tracks the S&P 500, or the worldwide stock market, because this is the single surest way for "normal" people to retire rich.

nly 5y ago
There are a lot of people who think that returns are going to be lower going forward due to 1) reduced productivity, 2) more people investing with too much liquidity looking for a home, and 3) high starting valuations. I don't have much of a better idea tbh but I'm always seeking alternative investments.
- thomascgalvin 5y ago
  That's the primary reason I mention a total-world fund. A lot of people expect the US to be flat for the next few years, with a corresponding uptick in the world market.
  - exhilaration 5y ago
    Can you recommend a total world fund?
    - thomascgalvin 5y ago
      VTWAX is the gold standard: https://investor.vanguard.com/mutual-funds/profile/VTWAX https://investor.vanguard.com/mutual-funds/profile/VTWAX If you don't want to dump $3K in one go, there's VT: https://investor.vanguard.com/etf/profile/VT https://investor.vanguard.com/etf/profile/VT

thesuperbigfrog 5y ago

They do require starting capital which the asker may or may not have. Still, it is a good option if your finances allow.

RivieraKid 5y ago
Any type of passive income is generated by capital which you have to somehow acquire, typically through labor. For example, you can use your labor to create a game. Or you can sell your labor and buy stocks in a gaming company.

xondono 5y ago

For 2020 that looks even low. For reference QQQ almost hit 50%.