Passive Investment – What is it?

By | January 16, 2012

Have you ever heard the term, ‘passive investment‘ and wondered what it exactly meant? If you look around the internet, this is a popular subject.   I tend to take a more liberal approach to defining passive investments (as I think that a blog CAN be a passive investment) than many of my personal finance blogger peers. So what is the definition of a passive investment and why do I think a blog can qualify?

What is a Passive Investment

A passive investment is that which does not require time or energy to maintain. Often it is restricted to ETF’s or mutual fund investments. Some of my friends also include cd rates and the interest gained from these accounts as well. Essentially that which doesn’t require regular maintenance. So, imagine your typical day trader or person who selects individual stocks and think of something that is completely the opposite.

The hype behind passive investments is that they almost guarantee a decent return with little time invested. You can select your asset allocation and leave it for the long term without a lot of extra time or worries. I think this can be a legitimate approach to long-term savings. Over many years, you can build up a large lump-sum.

Why I Include Blogging as a Passive Investment

It’s no secret that I am trying to earn a side income from blogging. I hope to build it up as a legitimate income to the point that I can quit my day job. Yet, as many people will comment, it takes work. It isn’t as passive as the traditional understanding of passive investment. Yet, I do think that blogging can be considered a passive investment.

If you establish your blog well enough, you can hire out the regular tasks to other people who are interested in earning a little extra money. If you hire out most of the tedious tasks, I estimate that you can still have a sizable cash flow. This means for only a couple hours of work each week (eventually), you can have a decent income. If you repeat this process multiple times, you have a full-time income. While it may not be truly passive because it does take a little bit of time to manage, I would still suggest that it is passive income and therefore can be a passive investment – especially if you enjoy doing it. Either that or a high hourly rate.