A composer who releases a hit song gains a passive source of income, but only after a lot of active work. You have to create, register, promote, implement and invest time and money. The same applies to a writer who publishes a book. Writing is only the beginning: the real challenge comes later, in promotion, in interviews, at exhibitions, in searching for readers. Both build income that, in theory, becomes recurring, but relies on sustained effort to continue to exist.
This is precisely where the two great illusions of passive income are born. The first is that after you build wealth, you no longer need to work. The second is that the asset only needs to pay cash flow, such as dividends or rent, to ensure financial freedom. Both are tempting, but false. There is no truly passive income – and every inflow must be accompanied by growth to sustain itself.
As Aristotle said: “Pleasure in work complements work.” When building passive income, work is an integral part of achievement. To achieve spontaneous gains, there is always an initial phase of active effort. Anyone who writes a song, builds a rental house, or invests to make a living from the profits must first save, plan, and invest time and money. And even after you start receiving, the business continues — because every source of income needs to be nurtured so it doesn’t dry up.
Take the example of an investor who builds rental properties. Before he received his first lease, he selected the land, financed it, monitored the work and dealt with delays and costs. When the property is ready, new tasks arise: maintenance, dereliction, taxes, and tenants. If there is no management, asset values decline, rent shrinks, and “passive” income ceases to exist.
The same thing happens in investments. Creating passive income requires a lot of savings and consistent portfolio management. Whoever thinks that it is enough to buy shares in companies that have achieved good profits in the past is wrong. It is necessary to evaluate whether these profits are accompanied by appreciation. After all, income consists of dividends plus capital gains or appreciation. If the valuation is negative, the investor gradually begins to consume his own shares.
Passive income therefore involves two traps: the trap of inertia and the trap of myopia. Inertia makes the investor believe that the business is over; Myopia makes you see only profits, not capital growth. Dividends without appreciation erode purchasing power over time, like a song that is still being played but losing listeners every day. It is necessary to reinvest, review and adjust. Without it, the asset value silently declines.
Just as a composer or writer continues to promote his or her works even after success, an investor looking for passive income needs to remain active. True comfort comes not from missing work, but from the independence gained through a job well done. Because passive income, in practice, is just a reward for those who never stopped caring about what they built.
Michael Viriato He is an investment advisor and co-founder of a company Investor House.
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