Composers who have released successful songs can receive a passive source of income, but only after doing a lot of active work. You have to create, record, promote, perform, and invest time and money. The same goes for authors who publish books. Writing is just the beginning. The real challenges come later, with promotions, interviews, trade shows, and finding readers. Both theoretically generate regular income, but it depends on constant effort to stay in existence.
This is exactly where the two great illusions of passive income come into play. The first is that you won’t need to work after you build wealth. Second, assets guarantee financial freedom by simply paying cash flows such as dividends and rent. Both are attractive, but they are wrong. No income is completely passive. All income must be accompanied by growth to sustain itself.
As Aristotle said, “Joy of work makes work perfect.” And when it comes to building passive income, work is an integral part of the outcome. Generating automatic profits always requires an initial stage of active effort. Anyone who wants to write songs, build a house to rent, or invest to make a living from dividends must first save, plan, and invest time and money. And even after you start receiving, the work continues. This is because we need to ensure that all sources of income do not run dry.
Consider the example of an investor building rental properties. Before receiving the first rent, he selected the land, raised the financing, oversaw the work, and dealt with delays and costs. Once the property is ready, new tasks arise such as maintenance, defaults, taxes, and tenants. Without management, property values would decline, rents would decline, and “passive income” would cease to exist.
The same thing happens with investing. Generating passive income requires significant savings and ongoing portfolio management. People who think that it is enough to buy stocks of companies that have paid high dividends in the past are mistaken. It is necessary to assess whether these dividends are accompanied by appreciation. After all, income consists of dividends and capital gains or appreciation. If the valuation is negative, investors will start consuming their shares little by little.
So there are two traps with passive income: inertia and myopia. Inertia makes investors believe the job is done. When you become short-sighted, you only see dividends, not capital growth. Thankless dividends erode purchasing power over time, like a song that is still being played but is losing its audience every day. It requires reinvestment, review, and adjustment. Without this, assets would quietly depreciate.
Just as composers and writers continue to promote their work even after they become successful, investors seeking passive income need to remain active. True rest comes not from not working, but from the autonomy that comes from a job well done. Because passive income is really just a reward for not stopping to take care of what you’ve built.
michael Billiat is an investment advisor and founding partner. investor house.
Link exists: Did you like this text? Subscribers can access it for free up to 7 times a day from any link. Click on the blue “F” below.
About The Author
