Making passive income is great, but when is it considered as active income and when is it passive. In this video I will go through the 3 biggest differences.
The first thing you need to know and need to understand is that there is a difference between investing and income.
Income is what you get, when you exchange time and effort, whereas investing is you have put your money somewhere, and let time do its work, and you can get money back from your investment.
The second thing you need to know of passive investing is that you do the work upfront, and then just let time do its thing. And mainly we want to wait as long as possible. Whereas active investing is that you do research upfront, and even while investing. It is keeping an eye on the market, not necessarily doing it daily, because that would be day trading, but checking it out each time you want to invest more money, or when you want to take it out.
The third thing is, there are more version of investing, and the hybrid method me and my wife created is that you buy&hold stocks, but in the same time, you sell when you make a profit, and you buy more when the stocks are low. But… It’s not completely active, as looking at intrinsic level of a company is not necessary.
Easily said: passive investing is following the benchmark, and you can buy&hold or you could use the dollar cost averaging method, which allows you to ride the waves slightly more, in times of ups and downs.
Active investing is checking out the intrinsic value of a company before buying. When the price is low, and intrinsic value high, it means buy more. When the stock price is overestimated, then sell.
And in warren buffett’s method, you should just do the research up front, and then buy millions of stocks of a company.. And hold for 50+ years. That’ll make you rich as well.
In the end, your job is to research your belief in a certain stock, and buy it, and hold it long enough to make it grow in equity and value.