Overview
Portfolio income is the last type of income in our Income Series and is earned through investments in assets such as mutual funds, stocks, and bonds. Like passive income, you don’t have to be in an active “traditional” job to earn this type but it can only be done through capital appreciation or dividend income. Capital appreciation is when an asset increases in value or price compared to its purchase price. For example, if you bought land for $1000 and a couple of years later its price increases to $1500, there is a capital appreciation of $500. Dividend income on the other hand is when a company pays you for holding a share/stock in their company. Think of it as a reward from the company for your investment in them.
Pros and Cons
After establishing an investment portfolio, income derived from it can be created passively. In other words, it can be made even without active involvement. Along with this, you have flexibility and control over various aspects and are subject to lower tax rates. When investing in a portfolio, it is important to take in mind market volatility as market prices can undergo rapid fluctuations. This could also mean that income through investment may not always be guaranteed and investors should be cognizant of any market fluctuations.
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