A category of income (in addition to portfolio income and active income) that is generated asset classes such as real estate (rental but not capital appreciation), licenses and patents. However, most of passive income comes from real estates that also provide certain tax benefits for the holders.

This source of income represents money earned without actively working for or engaging in. It is derived from a sort of economic resource that already exists and continues to work for its owner, without direct involvement in the earning process.

This category encompasses regular earnings from a source other than employment, contracting, or paper assets. Passive income is derived from two sources: rental property or a business in which one does not actively participate, such as ones producing royalties or stock dividends.

Passive income may also arise from ventures such as limited partnership, or other types of participatory business in which a contributing party is not actively involved (e.g., a sleeping partner).

Other examples of passive income include a diverse range of instruments or arrangements such as: a preferred stock (as holdings), bond ladders (for a holder), REITs (held by investors), and affiliate marketing. Investing can be a viable way to generate passive income, but only if the assets owned can pay dividends or interest. Non-dividend-paying stocks or assets like cryptocurrencies may provide good investing vehicles, but no passive income is generated therefrom.

For example, a bond ladder is a series of bonds that mature at different intervals over a period of years (starting with bonds of one year, three years, five years and seven years, and so on). The series involves staggered maturities whereby a holder can decrease reinvestment risk, i.e., the risk of reinvesting the principal amounts when bonds offer too-low interest payments. A bondholder can collect interest payments, and when the bond matures, he/ she can “extend the ladder,” rolling that principal into a new series of bonds.