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It's All About the Geese, Not the Eggs - Passive Income AssetsI was listening to another podcast from the BiggerPockets guys and their guest this time around was Natali Morris.  The podcast was called Limiting Beliefs That Hold You Back From Incredible Wealth.  Although the podcast was interesting, that’s not really the point of this post.

It was something that she mentioned in the middle of it that for some reason really jumped out at me and that’s what I wanted to share.  Natali said that when her father was in the midst of his divorce, he was referring to her mom and said:

She got all the eggs, and I got the geese.

It was only a couple of seconds out of a podcast that was over an hour, but I rewound to hear it again.  Her mom may have gotten all of their savings, for instance, but her dad kept the vehicles that produced that money, which I’m assuming is likely real estate rentals or some other income-producing assets.  Think about that for a second – that’s a really insightful deduction for him to make.

That got me thinking about the importance of having some type of income-producing assets to carry you even if you lose the base of what you already have.  In other words, having something that provides you with income on a regular basis even if you run into a major crisis can save your butt.

Assets can also be important to pass on to posterity.  I’ve figured out my game plan for financial freedom, but what about my daughter?  I want her to know the importance of work and responsibility, but I also want to help her build a sound future.  If there’s anything left in my nest egg, that would be great to get her started, but maybe it’s called a nest egg for a reason.  It’s no goose and once it’s gone… it’s gone.

But if I pass on some rental properties, now she’ll have recurring income instead.  Instead of the eggs, she’ll have the geese laying the eggs for her every month.

If you have kids, this can be extremely beneficial for your children’s future, but even if you don’t, it should still be something important to consider for yourself on the route to retire.

If you’re counting on the value of stocks and mutual funds to carry you and the market crashes for a decade, are you prepared for that?

Look, a lot of people are nervous about real estate – I get that.  I would love everyone to understand that it doesn’t need to be as complicated as you might think.  It can also be pretty hands-off with a solid property management company.  But I get that some of you are dead set against it.  Regardless, you should consider assets that produce a regular income whether you’re working or not.  Here’s a handful (although there are plenty of others)…

Income-Producing Assets

  • Rental Property – Whether you like it or not, there are reasons why most millionaires own some type of real estate.  This asset class has so many advantages, such as tax deductions (interest, depreciation, repairs, etc.), the power of leverage to buy it with only a portion of your money down, rents that will generally always go up (while a fixed mortgage payment stays the same), etc.  This is an asset at least worth investigating.  I’m hoping to add another 2-3 more duplexes to my portfolio before I quit the 9-5.
  • Business Income – A lot of work generally needs to go into this goose, but if you can build up a business to the point where you can step out of it and still receive income, you’re doing something right!  The key to this is that you need to be able to step out of it.  If the business directly involves you and you can’t leave it without the income stopping, then you don’t have a goose yet and need to figure that out.
  • Dividend Stocks – Don’t focus on the buy and hope strategy that a stock will continue to climb and you’ll sell it at a higher price.  Concentrate on the solid companies that have stocks that pay a dividend on a regular basis (usually quarterly).  There are some people like Jason at Dividend Mantra who has been working his way toward financial freedom by buying dividend stocks.  He’s going to be able to live off the dividends alone… now that’s awesome.  I’m definitely not where I want to be with this class, but I’m starting to build it up a little more.
  • REITs – If you don’t want to add rental property to your portfolio, another option might be to look at a Real Estate Investment Trust (REIT).  A REIT is a company that owns (or finances) real estate and gives investors an opportunity to get into real estate without getting their hands dirty.  Most REITs trade on the stock market and pay their shareholders dividends generally comprised of most or all of their taxable income.  I have a REIT in my Roth IRA, but since I’m focusing on rental properties, I’m not concentrating on this asset class as much.
  • Royalties / Licensing – Although a lot tougher than some of the other options, royalties from books or music or licensing on an invention carry some people for decades.  The key is that it needs to be something that consumers want in order to see a reasonable income.  I’ve written a couple of technology books over the past handful of years and while receiving the royalty payments is great, technology changes, which means that the books have a useful life and the payments eventually stop.  Once of my goals is to write a good children’s book once I quit the 9-5.  I’m going to write it because I want to, not for the money.  However, if it gains some traction, it could be a nice little stream of income that wouldn’t really end like a technology book does.
  • Bank interest – When you’re talking about passive income assets, this might be the biggest letdown of a goose, but it’s still important.  Most of us need to have some money that we can get to pretty easily (liquidity).  I’m a fan of the online banks (I use Ally) just because they pay a lot more than the bricks and mortar places.  It’s not a big money-maker, but at least it’s something.

As I said, these are just some of the income-producing assets available, but the important thing is to know the difference between the eggs and the geese.

I’ll take the geese any day… what about you?

Thanks for reading!!

— Jim

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It’s All About the Geese, Not the Eggs
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16 thoughts on “It’s All About the Geese, Not the Eggs

  • May 10, 2016 at 7:00 am
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    I like this analysis – thinking about the goose rather than the eggs. Besides real estate and business income, there’s not a lot of options for purchasing a goose (it seems). I once thought about laundromats, but they seem to be vanishing as the service is outsourced. And laundromats would count as a combo of business income and real estate anyway.

    Reply
    • May 10, 2016 at 7:54 am
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      Thanks, Biglaw – I guess the existence of laundromats might be dependent on where you live. I still see them around and every once in a while someone tries to revamp it and come up with something different. A handful of years ago, there was a laundromat near a university here that was a also a bar. So you could put your wash in, have a couple beers, throw it in the dryer, have a couple more beers and call it a day. Interesting concept and it seemed to be busy but it must not have been too profitable as they eventually closed up shop.

      — Jim

      Reply
  • May 10, 2016 at 11:35 am
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    Good one Jim, I enjoyed reading.

    I’m big on the dividend income stocks. For me, if it doesn’t produce income it’s not really an asset. We’ve also got a significant chunk of our net worth in REIT’s as well. It’s enough to kick off some significant monthly income production. To the tune of $4k per month (or so).

    You quote got me to thinking. Which is better, the Geese or the Eggs? In skilled hands, Eggs can become fantastic Geese. In inept hands, Geese can fail to produce Eggs. It all depends upon how they’re managed.

    Reply
    • May 10, 2016 at 12:18 pm
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      Thanks, Mr. Tako! $4k per month is awesome – congrats on that!!

      I’ll think I’d take the money-maker any day over the pot of gold! But that’s a good geese and eggs point – sounds like your REIT’s are a solid goose!

      — Jim

      Reply
  • May 10, 2016 at 1:56 pm
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    I like this way of thinking about it all. Though we’re happy building up both geese and eggs. 🙂 We’ve started talking about investing in another rental, though I worry that the market has heated up in the areas around us too much to make it a good deal now. And you know how I feel about more debt! 🙂 But we definitely have the first rental, and a big portfolio of dividend generating stock funds — and our plan is to treat all of that like geese, not like eggs!

    Reply
    • May 10, 2016 at 2:48 pm
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      Might be worth knowing that on these BiggerPockets podcasts I keep talking about, I hear a number of people already side-talking about the real estate market getting close to the peak. Who knows if that’s true, but if so, maybe when you guys are ready for another rental, there will be a nice fire sale for you! 🙂

      — Jim

      Reply
  • May 10, 2016 at 3:30 pm
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    Jim:

    This has been the biggest eye-opener for me since I began blogging. Previously, I was a buy funds and hold them waiting for capital appreciation investor. I did this even though I was uncomfortable with the approach as I have seen long periods of market volatility where you might not see much appreciation for years.

    The capital gains approach also requires you to sell assets to generate income. I do not like to sell anything (stocks, cars, houses, old stuff). I like to buy and hold.

    I am actually about to take the leap and buy into a real-estate backed fund that pays a cash dividend. It doesn’t have any capital appreciation element and it can’t be held into perpetuity, but it pays a decent yield. And it’s a start.

    Reply
    • May 10, 2016 at 4:44 pm
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      You ain’t just whistling Dixie, Pixie!! 🙂

      I was a big stock appreciation guy too and now think back to how that money could have been better invested elsewhere.

      Let us know how the real-estate fund pans out. That sounds interesting!

      — Jim

      Reply
  • May 15, 2016 at 6:08 pm
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    This is an excellent framework. Especially since geese will do the work for you, you just have to give them a secure home.

    Reply
  • May 17, 2016 at 6:57 am
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    This is an interesting idea. If you don’t have geese that continue to provide eggs for you, all you can do is hope that your eggs don’t run out when you still need them. Great post!

    Reply
  • January 22, 2017 at 3:19 am
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    Great article and Great analogy!
    That’s exactly why I started a Dividend portfolio of 10.00 Euro for my kids since 1st Jan 2017

    I see them as gooses which I can then pass on and teach my kids how to feed and manage.
    You can follow the progress on my new blog http://www.dividendcake.com throughout the year.

    Good luck with your goals of 2017 !

    Greetz

    Dividend Cake

    Reply
    • January 22, 2017 at 9:29 am
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      Thanks, Dividend Cake! That’s fantastic that you’ve got your kids on the right track with growing and managing their money… they’re going to appreciate that a lot when they get older.

      Good luck to use as well this year!

      — Jim

      Reply
  • May 14, 2017 at 5:38 pm
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    Well said Jim.

    You make some great points here.

    Income producing assets potentially throw off renewable cash indefinitely, with varying degrees of involvement from the owner. The good ones also enjoy capital growth. Sounds like winning to me.

    Diversity across asset classes is also hugely important, as the cyclical nature of each don’t tend to coincide precisely. A stock market crash is going to ruin your day, while a Japanese style “lost decade” is going to hurt for much longer than that. It would suck much less we’re the investor to have spread their eggs across many baskets (both geographically, industry, and asset class).

    I’m a big fan of directly held real estate, it is one of the few asset classes where the investor can actually create value, as opposed to piggybacking on the efforts of companies and relying on management to make the right decisions.

    Reply
    • May 14, 2017 at 8:56 pm
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      Thanks, Slow Dad! Definitely agree on the real estate – and with the depreciation and tax breaks offered, it seems that the government also encourages this avenue for investors as well.

      — Jim

      Reply

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