Passive Income
Earnings that require little ongoing effort to maintain, such as dividends, interest, or rental income.
Passive income is money earned from assets you own rather than hours you work. Common sources include stock dividends, bond interest, rental property, and royalties. Building enough passive income to cover your living costs is the core idea behind financial independence and the FIRE movement. Unlike a salary, it keeps flowing whether or not you actively work, which makes it a powerful tool for long-term security. It usually requires upfront capital or effort to establish before it becomes truly hands-off.
Example
A $200,000 portfolio yielding 3% in dividends generates $6,000 per year, about $500 a month, without you selling any shares.
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Related terms
Dividend Yield
The annual dividend payment of a stock or fund expressed as a percentage of its current price.
Rental Yield
The annual rental income from a property expressed as a percentage of its purchase price or current market value.
FIRE (Financial Independence, Retire Early)
A financial movement focused on aggressive saving and investing (often 50–70% of income) to achieve financial independence and the option to retire decades earlier than traditional retirement age.
Compound Interest
Interest earned on both the initial principal and the accumulated interest from previous periods, creating exponential growth over time.
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Supplementary Pension
A voluntary, often state-supported retirement savings product that tops up your future state pension.
ETF (Exchange-Traded Fund)
A fund that holds a basket of assets (stocks, bonds, or commodities) and trades on a stock exchange like an individual stock.
Dollar-Cost Averaging (DCA)
An investment strategy of regularly investing a fixed amount regardless of market price, reducing the impact of volatility over time.
Net Worth
The total value of all your assets (cash, investments, property) minus all liabilities (loans, mortgages, credit card debt).
Asset Allocation
The strategy of dividing investments among different asset classes — stocks, bonds, real estate, cash — to balance risk and return according to your goals and risk tolerance.
Diversification
The practice of spreading investments across different assets, sectors, and geographies to reduce the impact of any single investment's poor performance.