Avoiding Passive Income Scams – Competitive Enterprise Institute
Recently, on episode three of the Free the Economy podcast (about 5:30 in), we discussed the promise and perils of “passive income” investments. On the show we like to emphasize that the U.S. economy is full of opportunity, including outside traditional workplaces. Entrepreneurship, investments, franchises, side hustles, online selling and reselling—there are lots of ways to make money and achieve financial independence in this, the world’s largest and most dynamic economy. But there’s a misleading undercurrent here, which is the frequent description of many of these non-salary income opportunities as “passive” income. For many of our hustling brethren, this is the holy grail of finance—the gig that pays you income every month regardless of whether you do any work or not.
Now there are some investments that really do produce passive income—interest from bonds and certificates of deposit, for example. But you need to have a much larger pool of capital to begin with to receive that regular income. Earning 3 or 4 or 5 percent interest isn’t much of a road to financial independence if you need to already have a couple of million in investable cash to begin with. So many financial and investing influencers will label other things as passive income opportunities even when they aren’t really passive at all.
People who sell online courses and offer personal coaching, people with YouTube channels and affiliate marketing blogs, and people with online publishing operations will often refer to those projects as passive income streams, but anyone who has ever produced a video or edited a blog knows that it is time-consuming, detail-oriented work, the kind that needs to be done continuously as long as the project is in existence in order to be successful. That’s not even remotely…
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