To do a correct Portfolio Analysis the risk versus returns have to be weighed in. Let’s look into it in a little more detail. Lending has been of great help in the past to create Passive Income for many households. Many people are still using lending to make passive income even now. But we have seen that it is causing more damage than benefit recently.
Currently, our economy is struggling at a 4 percent rate of interest whereas earlier people used to lend at 18 to 24 percent rate of interest which, if now used, will lead to huge chaos when the situation is different, especially post Covid-19.
In the current scenario, the not-so-favorable situation is when people have been lending money to their relatives, friends and others at a rate of interest that is higher than their capacity and eventually reducing the interest rate shortly because of their incapability to pay.
If it does not happen, to talk about the worst scenario is when people default on the payment altogether, which results in irregular cash flows, no fixed passive income for years. However, if one looks closely and does their own Portfolio analysis they will realize their mistake, which is taking a very high risk and returns in unstable economic times. It indeed leads to a poor relationship with the lender as well as making it to be a non-scalable strategy.
But this is not the end, one can do an efficient portfolio analysis and make passive income using other ways starting with Bonds. A Bond (or a Non-Convertible Debenture) is an instrument in which one invests based on risk-taking capacity. For example, if you want to invest in a corporate bond, go for smaller corporate bonds to attain higher interest. Similarly, you can invest in government bonds which give less interest rate but are secure as here you can control the risk versus return something you cannot do by lending to people.
Another amazing feature about bonds is that one can take up the interest rate to 8 to 12 percent depending upon the type of bond and strategy applied to provide a systematic approach and necessary details like on what date one will receive the interest, the maturity of the bond and many more. These are considered advanced strategies as it gives dividend or interest and capital appreciation which are important in generating passive income. One can choose between monthly, quarterly, yearly, or maturity-based interest to be received to create consistency in income.
To conclude, the way money was managed in the past will not continue to give the same results, hence it is important to upgrade our portfolio analysis, techniques & financial IQ through which we make our investments and easily create passive income for life.
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