Passive Income, Aggressive Retirement: The Secret to Freedom, Flexibility, and Financial Independence (& how to get started!) by Richards Rachel

Author:Richards, Rachel [Richards, Rachel]
Language: eng
Format: epub
Published: 2019-11-11T16:00:00+00:00

Chapter 14: Portfolio Income: The Advanced

If you wanna turn up the heat on portfolio income, check out the following advanced options.

Peer-to-Peer Lending

First, we have another interest-generating option: Peer-to-Peer Lending (P2P Lending). P2P Lending is often seen as riskier and more complex than a simple interest-bearing account, so that’s why I’ve lumped it in with the advanced techniques.

The way P2P Lending works is that first, someone needs to borrow money. Instead of going to the bank or another financial institution to borrow it, they crowdsource the loan instead. I’m not talking about asking friends and family to borrow some money. I’m talking about actual, formal, online platforms where lenders and borrowers can come together to facilitate a loan. Anyone can go on to borrow money, and anyone can go on to lend money. The lenders, who are people like you and me, get to select exactly which loans they want to fund. Just like with lending money to a friend, you risk losing your investment if the borrower defaults, but you would typically get a higher interest rate than with a checking or savings account. LendingClub and Prosper are two popular P2P platforms that you can check out if this interests you. They’re not offered in every state, but you can check their websites to see if you’d qualify.

MLPs

I have this rule: Never invest in something you don’t understand. Seems pretty reasonable, right?

As an author and finance guru, I also avoid teaching anything I don’t fully understand. Master Limited Partnerships (MLPs) are not something I have mastered. Still, because they fall into the portfolio income category of all the different passive income streams, I’m bringing them up now. In my time as a financial advisor, I never once used or learned about them. In fact, from my research for PIAR , it appears that MLPs are commonly misused and misunderstood. Proceed with caution.

An MLP is a type of business venture and a type of investment that is traded on a stock exchange. I’ll explain only how they work at the very highest level. Most MLP businesses operate in the energy, gas, and natural-resource sector. An MLP has a general partner and a limited partner or partners. The limited partners are the investors; people like you and me that would buy units of the MLP on the stock exchange. The investors receive periodic distributions from the MLP; that’s your cash flow and passive income.

The benefits of an MLP mostly come in the form of tax advantages, steady and consistent cash distributions, and attractive yields.

If MLPs interest you, please consult a qualified professional that has significant experience with this type of investment specifically. Don’t try this at home.

REITs

I love these babies! REIT, pronounced “reet,” stands for Real Estate Investment Trust. They combine two of my favorite types of passive income: rental income and portfolio income. REITs are kind of like a middleman between you and a rental property. The REIT owns a portfolio of income-producing real estate assets which you can invest in, and then you earn a share of the income produced by the properties.

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