Returns

Passive Income: Definition

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Simple Definition

Money you earn without actively working, like dividends.

Why It Matters

Passive income is the goal of financial independence - money that arrives whether you work or not. Dividends are the most common form for investors. With enough invested in dividend stocks, you can cover living expenses without touching principal. A $1 million portfolio yielding 4% generates $40,000/year in passive income.

Key Points

  • Sources: Dividends, bond interest, rental income, royalties
  • Building passive income takes time - start early and reinvest to compound
  • Some retirees structure portfolios to live entirely on dividend income without selling shares

Related Terms

Common Questions

Money you earn without actively working, like dividends. Passive income is the goal of financial independence - money that arrives whether you work or not. Dividends are the most common form for investors.

Passive income is the goal of financial independence - money that arrives whether you work or not. Dividends are the most common form for investors. With enough invested in dividend stocks, you can cover living expenses without touching principal. A $1 million portfolio yielding 4% generates $40,000/year in passive income.

Sources: Dividends, bond interest, rental income, royalties

Building passive income takes time - start early and reinvest to compound

Some retirees structure portfolios to live entirely on dividend income without selling shares