Income From Multiple Streams | Wealth Management

How many streams of income do you have? How many are passive streams and how many are trade for time? If one stream dries up do you have others that can keep you going?

The typical person’s income situation is a work-for-hours job and an interest bearing bank account. Many people live paycheck to paycheck paying bills and living expenses as wages or salary comes in. If there is any surplus it might be put towards a recreational treat or an emergency fund. Many people spend more than they bring in and accumulate credit card debt. Depending on how much of their income they spend, the result might be gradually increasing savings, static net worth, or increasing debt.

A job provides one source of income that is often predictable with various perks such as some paid vacation time and sick leave. If you stop turning up for work the income also stops. If the employer so decides the job can be eliminated and income stops. This is trading time for money.

Money in the bank can earn interest on the principal whether the account holder works or not, whether it is a work day or a weekend or a holiday. Similarly investment accounts can build up value by reinvestment of interest or dividends and also increase in share price. These are passive incomes.

Everyone has the same number of hours in the day and days in the week. Even the most highly paid individuals can charge only so much and work for so many hours. Most wealthy people have achieved their prosperity by adding passive incomes that keep working for them without regard to time passing. In order to increase passive income from investments one needs to increase the amount invested and/or have rising capital value. A piece of land or shares in a growing company can gradually become more valuable even without providing dividends.

Without a surplus of income it is difficult to put aside regular income as savings to grow your assets. A big advantage of real estate is that it is relatively easy to borrow 4 times more money than you have on hand using the value of the property as security and take advantage of leverage. Each dollar of equity can control 4 or more dollars of asset value. Even so, the cost of entry into real estate investing is higher than what many people can afford.

More sources of income are helpful to add to the ability to accrue savings, investment deposits, and pay for loan debt service. However it hard to add more jobs to the day and impossible to add hours. We can only do so much trade-for-time.

The only way to add multiple streams of income is to create self-directed revenue that is not dependent on the the time you give it attention. That is the meaning and goal of passive income.

If you were to buy some land at a low price and in a good location you could expect it to gain in value over time as population expands and demand increases and inflation devalues currency. However when you sell that land you would get only a one-time profit gain. And holding land has carrying costs of taxes, often without generating income.

Improved property or real estate can be rented. The rental income can sometimes cover the cost of mortgage payments, taxes, and insurance plus sometimes provide a profit, as well as increasing in capital price. The rent payments are now providing you with recurring passive income. So while you go about your day to day events rental real estate is continuously bringing in income and profits.

Passive income is a relative term. There are few investments that are totally hands-off. Rental property requires attention to tenant problems, vacancies, maintenance, changing markets and expenses. Residential rentals are often short term and tenants are more demanding than commercial where leases are longer and the tenant often renovates and fixes the toilet them-self.

Financial investment instruments such as bonds, stocks, and mutual funds can require little attention except periodic assessment of returns and re-balancing portfolio allocations for diversity.

Diversity of incomes from various sources is extremely important. Having a portfolio consisting of only real estate leaves you vulnerable to market segment risk such as in the recent housing downturn.

A variety of assets in several markets protects your investments and multiple income sources from fluctuations and capital revaluation. When one market segment gets overheated profits can be reallocated to markets that are undervalued. Easier said that done but the principle is sound. In theory, different market segments should be chosen so that they behave in opposite ways.

Traditionally stocks and bonds worked in opposite directions. That is not so common now. Typically the major market sectors are bonds, stocks, commodities, and real estate, each behaving in slightly different ways depending on the economic situation, public enthusiasm, and government intervention.

Each of these markets can be broken down into smaller subsections to add more diversity and risk spreading, such as corporate bonds and treasuries, small and large company stocks, domestic and foreign stocks or bonds, consumable materials and commodities.

An overlooked variation in real estate besides commercial, industrial, farming and residential property is virtual real estate.

Virtual real estate comprises domain names on the Internet. Just like store fronts and corporations, factories and warehouses, domain names reflect value of the income they generate and the customer base they attract. Sales transactions online at Internet web sites are increasing exponentially. As a business, income producing web sites have a capitalized value and make an investment sector that behaves differently from most other markets.

Compared to brick and mortar businesses, virtual real estate has an extremely low barrier to entry, instant access to global customers, and can have very low running costs. Establishing a business online is inexpensive but requires just as much attention and marketing skills as a traditional store or wholesaler.

As a means of acquiring multiple streams of recurring passive income, multiple online businesses offer a way that many people can achieve with very little upfront investment or ongoing costs. And just as with regular real estate, web sites can be bought and sold at very low prices or for multiple millions, with attractive terms that allow leverage and income.

With the uncertainty of traditional markets and investing making many sectors appear to act irrationally, a new virtual trading world is appearing that allows multiple passive recurring income streams possible for many more people.

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