Re:Ask HN: What was your best passive income in 2016?
by wfunction on Sunday December 11, 2016 @06:48AM
(#13150675)
> But even if a company doesn't pay dividends, it will often make a profit that ends up on the company's books. A part of this profit, proportional to your ownership, belongs to you who own the stock.
You're totally missing my point. I'm saying, even if your stock is "worth" $1 trillion, if you don't actually ever sell it, you haven't earned a single penny from it. It's only money when it's actually money. So my question was whether the OP was ever selling the stock or not.
Re:Ask HN: What was your best passive income in 2016?
by dgacmu on Sunday December 11, 2016 @10:05AM
(#13151329)
This part of your statement is incorrect: "It's only money when it's actually money."
Stocks in major corporations are generally considered a liquid asset - i.e., they can be easily converted to cash. [1]
Don't confuse liquidity and risk exposure. The money is still subject to the risk of the market when it's still being held in stocks, but it's approximately as good as money.
In an index fund, the stocks contained in the index will on average pay out a certain dividend and turn a certain profit that isn't squandered on worthless projects.
This last part is what makes stocks increase in market value long-term, and which also makes it reasonable to sell a small proportion of your shares every year as a passive income.
If the dividends and your sales constitute less than 3-4% of your funds' total market value each year, you can expect your portfolio not to decrease in value long-term.