Is a passive income really as passive as it seems? And how does it work in practice? In a Volkskrant podcast, Patrick Verwijmeren, Professor of Corporate Finance at Erasmus School of Economics, talks about a trend surrounding passive income and gives advice on how to start investing in a podcast from de Volkskrant.
Buying time
By passive income we mean earning money without working at the time. Often an investment is made beforehand. Think for example of investing in stocks or renting out a holiday home. Verwijmeren says he has no passive income as he chooses to leave his investments and only sell them far in the future. The moment you withdraw the money from your investment account you would have passive income. With passive income you actually buy time. 'By investing, I have the possibility of working less or even to stop working in the future', Verwijmeren says.
Spreading risk
Often in crises you see people reconsidering their careers. It can then be an option to opt for passive income and do things differently, says Verwijmeren. But there are also risks involved. 'It's often difficult to estimate the potential when you start something. Certainly when it comes to writing books, it's often a great disappointment how much work is involved. With investing, it is often by definition uncertain how much you can earn. According to Verwijmeren it is especially important to spread your risk and to not put all your money into one single investment.
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The full item from de Volkskrant, 3 August 2021, can be found here (in Dutch).
