16 ms·

"passive income", in it's original iteration, wasn't the idea that you could make money by doing nothing. The idea was that you made something or did something

• andai 2y ago
  >just put up some initial capital in exchange for even more money back Isn't that how index funds work?
  • sam1r 2y ago
    Well, not many index funds succeed, in that same proportionate rate.
  • markus_zhang 2y ago
    People believe in index funds because of multi-decades of globalization and (in general) cheaper money, which has been less and less true since 10 years ago. Even if you bought some during the 90s, you still need a tremendous belief in yourself and the market to hold them for 30 years. It's not that easy. I know many people put the fund into a retirement fund, but 1) is every body consistently doing that for 30 years? and 2) what if the market sucks when you retire? I still think that's not a bad idea, maybe one of the best for lay persons.
    • philsnow 2y ago
      > People believe in index funds because of multi-decades of globalization At some point we're going to reach the heat-death of the economy and we'll be "completely globalized", I guess?
    • lotsofpulp 2y ago
      > what if the market sucks when you retire? You don’t have to liquidate all of your investments on your retirement date. If the market sucks so much for 5+ years and your government can’t get it pumped back up, you probably have a bigger problem than your retirement savings, such as food and energy and security shortages. It would be bold to bet against a government not constantly decreasing the purchasing power of its currency to prop up asset prices, especially with declining proportions of young people. The political apparatus will want to maintain old people’s position at the top of the social hierarchy, and if their purchasing power isn’t maintained so they can keep buying the fruits of others’ labor, it means the country is dissolving.
      • KK7NIL 2y ago
        > If the market sucks so much for 5+ years and your government can’t get it pumped back up, you probably have a bigger problem than your retirement savings, such as food and energy and security shortages. The S&P500 was flat or negative from 2000 to 2012. And this isn't unusual. > It would be bold to bet against a government not constantly decreasing the purchasing power of its currency to prop up asset prices, especially with declining proportions of young people. The political apparatus will want to maintain old people’s position at the top of the social hierarchy, and if their purchasing power isn’t maintained so they can keep buying the fruits of others’ labor, it means the country is dissolving. How does the government decreasing the purchasing power help old people? This is quite the opposite, retirees survive off of a fixed income (mainly from welfare and pensions but also fixed income investments since they shouldn't risk the stock market) and are the most hurt by inflation.
        • lotsofpulp 2y ago
          > The S&P500 was flat or negative from 2000 to 2012. And this isn't unusual. At its worst, 1999 to 2009, SP500 total annual return was only -0.2%, per dqdyj. Thats really good considering the upside (which has since been realized), and it shows that the government is willing to pull out all the stops if the market is down just -0.2%. > How does the government decreasing the purchasing power help old people? Old people are likelier to have assets and/or fixed income from assets (such as defined benefit pension funds). The government can also increase Social Security benefits quicker than wages in the market. The government also can maintain current benefits and reduce them for younger people by increasing the retirement age and adjusting the “bend points” in the benefit formula. Of course, the poorest old people won’t benefit as much, but there’s a solid contingent of old people who do have at least real estate in their home, if not investments in the broader market that are very politically active. > mainly from welfare and pensions but also fixed income investments since they shouldn't risk the stock market) and are the most hurt by inflation. They shouldn’t be in fixed income for expenses needed beyond 10 years. I’d even be so bullish as to say 5 years. The demographic changes of the population pyramid flattening and turning down just started hitting economies in the 2000s. I don’t see any other way out for governments, so your goal is to tread water, you at least want to be invested in whatever the politicians are going to backstop (which is evidently not USD or fixed income, but rather equities).
    • ForHackernews 2y ago
      I don't think you need tremendous belief. What else are you going to do with your money? I can't think of any other proposition that compares with investing in the US economy. https://apollowealth.com/one-chart-120-years-of-the-dow-jones-industrial-average/ https://apollowealth.com/one-chart-120-years-of-the-dow-jone...
    • williamdclt 2y ago
      > what if the market sucks when you retire? if it's been good (on average) for 30y but then sucks when you're about to retire, you still probably accumulated a lot of money from these 30y of interest
      • hunter2_ 2y ago
        I wonder what the longest duration has been, in the history of let's just say S&P500 or similar, between [a low so bad that people would say "sucks that I'm retiring now"] and [the point in time prior to that, where it had the same exact value but as an all-time high]. A decade maybe? So basically one would conclude that they could've begun taking withdrawals a decade ago with the same size of retirement account (well, except for all the contributions throughout that decade, and except for the extra decade of remaining life expectancy, and prevailing wisdom to reduce risk as retirement approaches, each extremely significant, but the point remains to some extent).
        • JoshTriplett 2y ago
          There was a study (https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study) showing that you could count on a 4% withdrawal rate for retirement income over any 30-year retirement period, including periods spanning the Great Depression and other market lows. Most of the time you can count on more; that was the lowest across the entire study. And with compounding, the difference between "30-year retirement period" and "indefinite retirement period" is not much; withdraw a bit less, or be able to adapt to prevailing conditions, and your retirement portfolio will last indefinitely.
        • eru 2y ago
          Are you talking inflation adjusted or nominal? Total returns?
          • hunter2_ 2y ago
            I guess nominal, because not having kept up with inflation would be the main source of it sucking badly. I think of it like this: You lose to inflation badly with uninvested cash. You get close to keeping up with inflation with near zero risk vehicles (CD or high yield savings account). You hope to at least keep up with inflation with medium-low risk vehicles (S&P500 or similar funds). You roll the decide after that (leverage, timing, stock picking, etc.).
  • apeescape 2y ago
    It's not guaranteed that you get more money back from an index fund (unless you've found an arbitrage, but that's a corner case). Even the bigger and stabler indexes like the S&P500 have their ups and downs, both on a daily level but also over longer time spans. The long-term trend has been positive for these types of indexes, but remember that past performance doesn't guarantee future profits :)
    • Ekaros 2y ago
      One needs to look at multiple markets like for example Japan. Which really points that future growth is not guaranteed.
    • krazii 2y ago
      Sure, it is not guaranteed profit, but it is certainly not "always a scam" as previous poster put it. It is very likely a way to make profit.
• hifromwork 2y ago
  >just put up some initial capital in exchange for even more money back, is always a scam. some people might come out ahead sometimes, but more people will lose than win. How so? My all-world index funds are doing pretty well. For more risk averse, almost every buyer of USA governmental bonds gets "even more money back" in exchange for the initial capital. I don't think that's a scam either.
  • shnock 2y ago
    Not everyone can buy USA bonds. Is the population of winners and losers all humanity?
    • s1artibartfast 2y ago
      The money that is used to buy the bonds goes to the government, and then into the pockets of the citizens. The bond holders tend to be the tax prayers as well, so it is almost like a partial rebate.
  • rlayton2 2y ago
    There is a risk, however small, that your bonds won't be paid back leading to a large loss.
    • eru 2y ago
      There's also the very real risk of bigger than expected inflation.
  • khuey 2y ago
    > For more risk averse, almost every buyer of USA governmental bonds gets "even more money back" in exchange for the initial capital. In nominal terms, sure. In real terms, ask the banks that bought 30 year treasuries in Spring 2020 how that's going for them.
    • ensignavenger 2y ago
      The problem for some of those banks wasn't the 30 year treasuries, it was that they bought those treasuries with other peoples money, and other people did not commit to 30 years, so now when the other people come to get their money, the bank doesn't have it. The 30 year treasuries are still doing just fine, in accordance to the terms of the treasury when it was bought.
• markus_zhang 2y ago
  Yeah, nowadays "passive income" is basically debt interests (like bonds) or rental income, both of which actually need a lot of work. I rarely traded financial instruments so cannot say for that, but as a small landlord I wish I never entered the business. Like, all businesses need initial investment AND a lot of continuous effort and learning, and are probably boring (or VERY barricaded) because otherwise people are going to swarm in. I need to know the market, the laws and regulations, and some other stuffs, most of which are extremely boring and not really "hackable" (as for hackers) because accountants and governments already sorted everything up to make sure it's hard for small businesses to evade tax -- You can learn which parts are expenses in an afternoon, and then you have to deal with a lot of headaches. I know some people who own gas stations and large depanneurs (in QC they are independent convenient shops), which are luxurious on face, but they either have to pick a remote one (away from competition from supermarkets) or/and work 7 days without hiring an extra hand. They grind for 10 years and sell the business when time is good.
  • SirMaster 2y ago
    Rental income doesn't need any work if you are just an investor though. I don't do a single thing. The people who are managing the deal are the ones who do the work and hire the workers to work on site and such. They of course get an even better return during the sale, but I am happy with what I get for doing nothing. My rental properties are paying me a decent passive income of about 6%, and additionally the total investment about doubles in roughly 5 years. Also the tax advantages are pretty huge with the depreciation and the ability to take the money from a sale and put it into a new property with no tax. So say you start with an initial $100K investment. That pays back about 6K a year for 5 years and then turns into about 200K after 5 years which you then put into a new property and make 12K a year, and so on and so on. So if you start with 100K when you are say 25, then when you are 50, you will have around 1.6M in property assets making you about 96K a year in passive income, where the depreciation on the property value and the assets in the property outweigh the tax on the income, so that income is all tax free. And that calculation is assuming you don't put even more capital in from some other source. Of course it's a roughly average return assumption. Some properties will do better and others will do worse, but it's been my experience that it's about right. Of course this is only one of my investment baskets. I allocate roughly half of the income that I can invest into real-estate like this and the other half into low cost index funds.
• m463 2y ago
  I think "passive income" is ambiguous, and people will sell it one way, and buy it another. wikipedia seems to have a broad definition of it. https://en.wikipedia.org/wiki/Passive_income https://en.wikipedia.org/wiki/Passive_income I see people saying passive income is not always hands off. I wonder if they are right or the "hands off" definition doesn't fit their situation.
• nerdponx 2y ago
  > put up some initial capital in exchange for even more money back The "even more money back" part is, in principle, compensation for you gathering the capital together and taking on the risk of losing. Not that it works out that way in practice.
  • eru 2y ago
    Also just compensation for the opportunity cost of not having access to your capital for a while.
• miki123211 2y ago
  > the version of passive income where you don't do anything productive at all, ever, and just put up some initial capital in exchange for even more money back, is always a scam No, that's just investing. This is how savings accounts work, this is how CDs work, this is how treasury bonds work, this is how passive investing (e.g. via ETFs on index funds) works, and there are many, many more examples. If you're keeping your retirement savings in an IRA / other local equivalent, whether owned privately or by your government, the same processes happen behind the scenes. You put in capital, you lock that capital away for a while, you get back more capital later. The differences here are in terms of possible returns. Bonds have (relatively) low returns but almost 0 risk, index funds have significantly higher returns but are also higher risk, though it's still pretty low if your time horizon is multiple decades, and there are crazy investments (think Bitcoin) with possibly eye-watering returns, but also an enormous amount of risk. Now investments with "guaranteed" eye-watering returns (think >10% per year) and apparently 0 risk? Yeah, definitely a scam.
  • immibis 2y ago
    If everyone does it, the world grinds to a halt and everyone dies.
    • simmerup 2y ago
      Well, everyone can’t do it because not everyone has access to capital
    • georgeecollins 2y ago
      What really happens: if everyone tries to acquire a particular income producing asset, the asset gets so expensive that the return is not worth the risk plus the time value of the money it could generate. Stocks in the 1920's, Tokyo real estate in the 1990s, US housing the mid 2000's...
      • eru 2y ago
        There was a US housing bust in the late 2000s, but there was never a bubble in the mid 2000s. Contrary to popular opinion. Otherwise I agree that in principle and in general all else being equal increasing prices lead to lower returns.
• jayd16 2y ago
  > more people will lose than win. It's not necessarily zero sum. If money is invested to produce value instead of simply moving it around then everyone can benefit.
  • schmidtleonard 2y ago
    Yes, though it's important to note that the economic notion of value is weighted according to wealth and therefore more than a bit weird. Feeding an orphan creates no "value" because they have no money to pay you with, while merging companies into a mega-monopoly that can shake down the rest of the economy creates loads of "value" because it pays rich investors huge dividends. Of course, there are plenty of honest ways to create value and get paid for it, and that's pretty cool. Both extremes exist, most things are in the messy middle, and reasonable minds can differ about which way the system leans and what should be done about it, if anything. Another piece of important context is that the US is a developed economy, not a growth economy. If the pie is growing at 2% and the capital slice of the pie is growing at 10%, anyone who lives in the remainder and argues that their slice is being grown is a fool.
    • Aeolun 2y ago
      > Feeding an orphan creates no "value" because they have no money to pay you with Only because it’s illegal to make them work? I imagine it could be quite lucrative.
      • yoyohello13 2y ago
        Big bad government enforcing those pesky human rights.
    • jayd16 2y ago
      I think people understand that, for example, investing in schools generates more value than you put in.
      • eru 2y ago
• kmeisthax 2y ago
  The original iteration of passive income was feudalism. It itself was a set of interconnecting passive income schemes[0], ultimately derived from your ability to own the most economically valuable land. This scheme hinges upon your ability to enclose and exclude access to that land by force - not prior labor paying off over time. Of course, the only passive income schemes that work today are the "prior labor" type. But that's because of copyright and patent law, which exist specifically with the idea that you can make something valuable now and charge the public for it later. A creative work or an invention is itself land being excluded by force, but this is a magical abstract land of nearly infinite size[1]. It's enclosers are empowered not through direct force, but through the blessing of a legal priesthood. Ok, I suppose if we're including force and feudalism, we probably should also include, say, organized crime. But in that case the labor isn't stored, it's slaved: you find suckers and scam them into doing crimes to your benefit, then get them to continue working for you, because if they ever leave you can just kill them, or sick the Feds on them. Y'know, I'm starting to think passive income is actually just a funny way to say theft... [0] The two schemes I'm thinking of are manorialism, and something akin to modern rent extraction or "chokepoint capitalism" in which you own a road or river and can charge money to people passing through your land. I forget the name of the latter, and there's probably additional relationships I'm not counting. I know the Holy Roman Empire was lousy with the latter kind. [1] Since there's far more of this creativity land than there is land on Earth, it's far harder to find land that people want or have to pay for. That's why entertainment is such a ridiculously hit-driven business and why entertainment companies hate rights reversion so much.
• throwaway2037 2y ago
  About your second paragraph, to be fair, most passive income schemes involve starting capital (a large amount). Then, this capital is invested into _relatively_ safe or low-vol assets (investment property, gov't bonds, utility stocks for divs), and passive income is received. Alternatively, you could buy something like a stable, middle-aged oil or natural gas rig. Or managed, commercial forest. Or rights to media to receive royalties. Yes, scams can exist in any investment scheme, but the previously mentioned ones are accessible, and safe for 1-5% of people with sufficient capital. What bothers me the most about the endless YouTube videos and "financial advice" blog posts about passive income: They fail to explain how you acquire the initial capital! Frequently, they saved millions from a previous job, like a Wall Street trader/salesperson or a senior FAANG engineer. I liked this video from Plain Bagel, "The Passive Income Scam": https://www.youtube.com/watch?v=AqZbO8Ojhmw https://www.youtube.com/watch?v=AqZbO8Ojhmw