Is Passive Income a Lie?
What You Can Learn From How Billionaires Invest
When I was a banker at Goldman Sachs, I saw the portfolios of some of the wealthiest people in the world.
Here’s what shocked me: they weren’t chasing exotic investments or secret strategies. They owned boring things like bonds, dividend-paying stocks, REITS and apartment buildings.
Just to be clear, this was not because they lacked access to complex deal flow but more because they understood something most people miss…
Passive income is just pre-funded income.
What the heck is pre-funded income?
You have to fund passive income before it pays you.
You fund it with effort or you fund it with capital. There’s no third option that I know of (yet).
Here is a real story:
My friend was an early engineer at Broadcom. He got stock options and cashed them out when the company went public. That stock has gone up 10,000% since the IPO. He has over $35 million now, but he still lives in his same house and drives his same car.
All he has is a simple dividend portfolio at Vanguard. Meaning, he owns stocks in companies that pay him a portion of their profits every three months. That income funds his lifestyle, and he hasn’t worked a day for the last 8 years.
He doesn’t have complicated tax strategies, vacation rental properties, oil investments, private equity funds, hedge funds, or currency trading accounts. Just boring stocks that pay him every quarter.
That’s what I mean by pre-funded income. He put money in once, and it pays him repeatedly.
The gurus sell you a different story. They tell you passive income is about finding the secret strategy, the hidden loophole, the exotic investment nobody else knows about.
That’s not how it works for people with real money.
Five Principles My Clients Actually Followed
After advising clients for years, these patterns showed up over and over again. Call me a nerd, but I tracked this stuff obsessively.
1. If it’s passive for you, it’s active for someone else
Dividend stocks pay you because companies are actively running businesses. Real estate investment trusts pay you because property managers are actively managing buildings. Bonds pay you because borrowers are actively making payments.
Passive income doesn’t mean nobody’s working. It means you’re not the one doing the work.
2. If it’s too good to be true, it probably is
My clients avoided anything that promised huge returns with no clear explanation of where the money comes from.
No crypto schemes promising 40% yearly gains. No currency trading systems. No obscure energy partnerships sold as insider deals. They optimized for safety on their “safe portfolio”… what a concept.
3. Start building it long before you need it
Pre-funding takes a hot minute.
You can’t manufacture passive income the month you decide you want it. The clients I advised didn’t wait until they were retired to build income streams. They built them while they were working so the pre-funded passive income would be there when their active income started slowing down
4. Pick reliable and boring sources
This is what actually every single one of the portfolios I worked on: bonds that pay interest, stocks from mature companies that pay dividends, REITs that distribute income, and apartment buildings that collect rent checks.
It is not exciting because its meant to not be exciting.
5. Stack sources instead of chasing one big win
My clients didn’t put everything into one investment.
They layered income streams: Like bonds for steady interest, dividend stocks for growth and income, and REITs for steady real estate income. Each source solved a different problem, and together they created a system that worked when (sometimes the) individual pieces didn’t.
I don’t have some kind of fancy closing paragraph for you, but there are 3 things you should remember:
Passive income = pre-funded income
You can pre-fund it with effort (where you get paid later) or capital (where you also get paid later).
And if it’s passive for you, it must be active for someone else.
If you like this post, then you’ll like this one too:
A great piece. 🎯 Thanks for sharing
Incredible writing as always! Do you see clients also using covered call ETFs such as SPYI or QQQI in these accounts, or do they fall too far out on the risk spectrum for your typical client?