Portfolio income is a classification of earnings that can be used as a way to earn money. This type of income stream is not considered “active income”, which would come from sources such as your job. Often times, portfolio income is referred to as passive income, as it does not require active participation.
Regardless of how one defines portfolio income, it is important to add several sources of earnings to your overall income strategy. Simply relying on one income stream such as a job, can be very risky. During times of recession and economic downturn, job cuts are common. If you or your significant other losses his/her job, then having additional income sources can help pay for bills and expenses. Adding portfolio income streams is one way to build multiple streams of income that will diversify your earnings and reduce financial risks.
Definition of “portfolio” & “income”
Take a look at the definitions of what the words “portfolio”, “income”, and “portfolio income” mean according to Dictionary.com –
portfolio – “the total holdings of the securities, commercial paper, etc., of a financial institution or private investor”
income – “the monetary payment received for goods or services, or from other sources, as rents or investments”
portfolio income – “Income from investments, including dividends, interest, royalties, and capital gains”
Sources of Portfolio Income
There are many possible ways to earn portfolio income. Here are a few sources that can be classified as portfolio income.
- Capital Gains – A profit that results from the sale of an asset for a gain. The assets could include investments such as stocks, mutual funds, and investment properties.
- Dividends – A payment recieved as a result of owning stock in a company. This distribution is a result of the companies earnings in which you own shares of stock.
- Interest – Income that is earned as a result of lending money to borrowers. Interest income could be earned by purchasing certificate of deposits, peer lending, savings accounts, etc.
- Royalties – Royalties are considered earnings generated as a result of owning property. The property could be land, copyright work, franchises, and more.
Can portfolio income be considered passive income?
When it comes to the IRS Definition, portfolio income cannot be considered as passive income. That is a very important distinction that you should remember when building multiple income streams and filing your taxes. Regardless of your opinion on how to classify portfolio income, don’t ignore this IRS clarification. Be sure to check with your accountant or tax professional for any questions regarding how to classify passive and portfolio income.
What types of portfolio income streams do you currently own? Do you consider any of them passive income? What other sources of portfolio income do you have that were not listed above?
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This is exactly the kind of thinking I’m writing about on my own blog (from a UK perspective) – the diversification of risk by nurturing several sources of income. I really like the royalty based income streams, and anything where you put in the major work at the beginning. For example, the print-on-demand companies such as CafePress, Zazzle etc. ‘Passive’ income in this case is a bit of a misnomer though, as of course there is the day-to-day work of promoting and marketing. But key to me with all of this type of income, is not having capital tied up as inventory, so therefore eBay selling might be something I’d tend to avoid.
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pfincome Reply:
July 17th, 2009 at 11:20 pm
@Neil – Have you used CafePress?
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I haven’t actually signed up for CafePress yet, but I do use Zazzle, and have three stores on there – although I’ve only got one populated with a decent number of products so far.
I have looked into CafePress (and others such as Printfection and Spreadshirt) and will probably join all of them as each are slightly different. CafePress charges a fee for what they call their ‘premium’ stores, which turned me off, I have to admit. I’m still fairly new to it, and want to see what kind of sales volumes trickle in before committing to something I have to pay for. They do have a basic store which is free. And Zazzle is completely free to use.
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