Active vs. passive vs. portfolio income | Metrobank (2024)

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Active vs. passive vs. portfolio income | Metrobank? ›

The answer depends on your lifestyle and your risk tolerance. If you like having the security of knowing when your money comes, then an active income is more suited for you. If you do not like being tied down to a 9-to-5 job and prefer having flexibility in your life, then a passive income may be the one for you.

Passive income is income that is passed from one individual to another in a passive way, and they include cash from property income--for example, real estates, rents and profits from capital owners. Portfolio income, on the other hand, is the money obtained from investments, dividends, interest and capital gain.

Active Income is earned through direct work, like salaries from a job. Passive Income comes from investments or ventures not requiring daily involvement, like rental income. Active Income is steady but time-bound, whereas Passive Income offers potential long-term earnings with initial capital.

Portfolio income does not come from passive investments and is not earned through regular business activity. It comes from dividends, interest, and capital gains, or from interest paid on loans. The categories of income are important for tax purposes.

Portfolio income is income generated from investments such as stocks, bonds, mutual funds, exchange-traded funds (ETFs) or real estate. It consists of capital gains, dividends and interest from a traditional savings account, a money market account, a certificate of deposit (CD) or a bond.

Rental income is generally seen as passive, even if an investor actively manages the rental property business. Typically, passive income is subject to your usual marginal tax rate, which is based on your tax bracket.

Active income, generally speaking, is generated from tasks linked to your job or career that take up time. Passive income, on the other hand, is income that you can earn with relatively minimal effort, such as renting out a property or earning money from a business without much active participation.

Passive income is money you earn without actively working for it — as opposed to earned income from a job. In general, passive income comes from putting something you own — property, money or expertise — to work. The revenue you collect in rent, dividends or ad sales are all forms of passive income.

Are capital gains considered active income? ›

Types of Passive Income

Like active income, passive income can flow from different types of streams. Common types of passive income include dividends and interest, rental income, royalties and capital gains. Dividends and interest income.

The primary difference between active and passive portfolio management lies in their strategies: active management seeks to achieve higher returns through market timing and stock selection, while passive portfolio strategy focuses on long-term growth by mirroring index performance.

Passive Activity Losses

In general losses from passive activities can offset only passive income. They cannot offset active or portfolio income income, however, they can be carried forward to future years and applied against passive income.

The World Bank classifies economies for analytical purposes into four income groups: low, lower-middle, upper-middle, and high income.

Ordinary business income (loss) reported in Box 1 of the K-1 is entered as either Non-Passive Income/Loss or as Passive Income/Loss. The determining factor in whether the income should be reported as Passive or Non-Passive depends on whether the taxpayer materially participated in the business activities.

What is active income? Active income is defined as salary earned from specific duties or services rendered according to an agreed task, within a specified time frame. Examples of active income are salaries, tips, fees, commissions, and allowances from the companies you provide services to.

For example, when the market is volatile or the economy is weakening, active managers may outperform more often than when it is not. Conversely, when specific securities within the market are moving in unison or equity valuations are more uniform, passive strategies may be the better way to go.

Active funds* aim to beat the returns of an index by attempting to invest in only the best stocks within the index. They're run by professional fund managers or investment research teams. Passively managed or index funds simply track a market by owning all, or a representative sample, of the stocks in an index.

Active income, generally speaking, is generated from tasks linked to your job or career that take up time. Passive income, on the other hand, is income that you can earn with relatively minimal effort, such as renting out a property or earning money from a business without much active participation.

Active income has its set of advantages. It's generally more predictable than passive income, providing a steady cash inflow which is crucial for effective daily and monthly budgeting. This reliability can help in planning expenses, saving for short-term goals, and managing debt.