Archive | May, 2013

Residual Income

9 May

In my book ‘Surviving 2013’ I write about building income producing assets.  By investing in a variety of income producing assets you create an investment portfolio capable of weathering the ups and downs of economic cycles.  Residual Income also known as Passive Income is money you receive on a regular basis whether or not you work for it.  Here we look at some of the investment opportunities that produce residual income.

Property – is one of the best known investment opportunities.  You can use a management company to look after the property for you and receive your income on a monthly basis from rents.  You can choose to manage the properties yourself in which case this then becomes semi-residual income as you are working for the income.

Shares – by investing in dividend paying shares you can receive a regular residual income.  Payment cycles vary and can be 3 monthly, 6 monthly or annually.

Network Marketing – is a business opportunity that can produce residual income.  Initially, the distributor has to work hard to build the business but as the business grows so does the residual income.  Once certain targets are met within the business structure income comes in each month without any further effort.  Some network marketing companies offer an opportunity to retire and lock in the income for life.

Peer-2-Peer – in the wake of banks failing to provide loans to the general public and businesses peer-2-peer lending has become a popular alternative.  With this type of investing you have a lending portfolio of small loans for example if you wanted to invest £100 you would have ten loans of £10 each.  Your £10 is then pooled together with other people making up the total amount of the loan required by the individual or business. So if the borrower wanted £1000 around 100 people would each invest £10.  Then each month you receive interest on your investment and a proportion of the capital paid back.  Interest rates are set by the investor.

Crowd Funding – is where a group of people get together investing money for larger sums of borrowing aimed at start up businesses.  The investor chooses which businesses to lend to and how much. If the business raises all the money required the investor receives shares in the business in exchange for the money invested.  If the business is EIS or SEIS registered there are tax benefits for the investor.  The investor may also receive a dividend from the business if it is successful.  This is a risky type of investment as the company may fail and you could loose all or some of your investment.

The above list is just an example of the type of investments available that can produce residual income.

As we have discussed in previous blogs there are cycles for asset classes.  Balancing your asset portfolio doesn’t stop your asset being exposed to the cycle but it can counter your exposure to loss of income.  Creating residual income allows the investor the freedom to work on building other income producing assets as well as reaping the rewards of the investment and the opportunity to build a better lifestyle.