DEFINITIONS AND DIFFERENCES:
Passive Investing:
- It is an investment strategy, generally for the long-term, where the aim is to obtain the same historical average return of the main financial market indices, such as the S&P 500 or the ASX 200.
- It is implemented using index funds (also called ETFs) as they present a broader diversification (and consequently lower risks) than isolated assets, such as a stock of a specific company.
- This strategy requires less effort (and knowledge), as it avoids unnecessary purchases and sales and tends to present returns similar to active investing strategy in the long term, but with less risk and lower costs.
- The main advantage for investors is: it allows you to spend less time tracking investments, so you can focus on your current source of income, whether passive or not.
Passive Income:
- It is an approach where you earn income (i.e $) without dedicating (a lot) of time to it.
- It may involve businesses, for example, an online course you have created and now it's sold even when you're (literally) sleeping.
- It can also involve investments, such as receiving dividends from stocks or monthly "rentals" from your Real Estate funds.
- This strategy requires little effort over time, but it does require some effort (or cost) for its initial implementation.
- The main advantage for the investor is to allow you to earn an extra income, which can increase the regular contributions to your portfolio.
