Hey All,
We all love income, no matter what form it comes to us. Whether it comes from salary or dividend payouts or via the Crypto tokens spike. All income is welcome, isn’t it? There is this famous line that I learned in one of my economics class and it said - Higher the Risk, Higher is the Profit. Do you guys recall this famous line? There are various income types and returns associated to it. We will get into the risk and return part later but for now have a look at the various income types which are::
Salary / Wages – Money earned by working a job and trading time for income. This is the 9 to 5 Job which most of us depend on for stable income.
Fixed Income – Safe, predictable returns from bonds, FDs [Fixed Deposists], or treasuries.
Business Income – Profits earned by running or owning a business.
Rental / Asset Cash Flow – Regular income from assets like property or royalties. House/Flat or a commercial property given for rent.
Dividend Income – Earnings shared by companies through stocks or mutual funds.
Capital Gains – Profit made by selling assets at a higher price than bought.
Your Own Product – Income from products you create and scale independently.
Now that we have explored the different income types, let us understand how risk and return are connected and how each income type carries a different level of risk and reward. Have a look at the following table that showcases all income types together, exactly aligned with the risk vs return.
Income Types: Risk vs Return [ Low to High ]
| # | Income Type | Risk Level | Return Potential | Comments |
|---|---|---|---|---|
| 1 | Salary / Wages | Very Low | Low | Fixed 9–5 income and it stops when you stop working. Also it is defined. |
| 2 | Fixed Income | Low | Low to Moderate | Safe, predictable returns (FDs, bonds, CDs) |
| 3 | Business Income | Medium | Medium | Profits from running or owning your business |
| 4 | Rental / Asset Cash Flow | Medium | Medium to High | Regular income from property or royalties |
| 5 | Dividend Income | Medium to High | High | Passive income from stocks and Mutual Funds |
| 6 | Capital Appreciation | High | High | Gains from asset price growth over time |
| 7 | Your Own Product | Very High | Very High | Scalable income from products you create and own |
Having a clear visblity on risk and return for a income type is imperative as it tells you what to expect and helps you make informed decisions. The more informed we are about our decisions, the better our outcomes become - resulting into more profits/income in general. I will conclude with this statement that all income is good, but not all income carries the same risk or reward. Higher returns usually demand higher risk and hence there are no shortcuts to it. Well this should be it for todays post on - "Income Types - RISK Vs RETURN..." Happy Investing & Earning... Cheers
Image Courtesy:: Image Courtesy:: Facebook - Kc Onyima
Best Regards
Paras
PS:- None of the above is a FINANCIAL Advice. Please DYOR; Do your own research. I have a personal interest in blockchain, stocks, and cryptocurrencies and actively invest in emerging projects.
Really understanding this is key in making solid investment decisions. For example while your individual investments all carry an individual risk/reward ratio - by mixing it rationally you can ensure that your portfolio risk is lower compared to the individual assets. For example by using assets that have an (somewhat) inverse relationship (negative beta).
Before $BTC alined with the general market due to corporations putting it on their balance sheets, $BTC did had a negative betagainst S&P500. The idea was that if hedge funds would allocate a few % of their portfolio to $BTC they would both pump $BTC to really crazy hights and would improve their own portfolio risk / return ratio (which would be the reason for them to jump in). That big S&P corporations moved before the large hedge funds eleminated that opportunity mostly as we now ride the waves with the market. For now precious metals serves as a somewhat good instrument- but is also decreasing in usefulness (for this purpose) as there is more market demand from the big electonic producers to apply it in their products (and thus again aline the movements with the general market).
I once had a 3 month F&I course on Behavioral Corporate Finance that was mindblowing, for example how Daniel Kahneman and Amos Tversky showed that while rationally we can understand the risk/return ratio, as humans we are hardwires to not make rational choices naturally.
This is a good point. I need to check out some of their work on this! Thanks for sharing!
Well said.. I need to digest all you have written. This can be a blog in itself.. Think about it. Cheers
Thanks, great suggestion! That sounds like a plan!
Everyone starts at a low level but then it is their hard work and consistency and dedication that takes them to new heights... It's not about Rich and Poor..
Greetings, friend. This is very valuable information to keep us informed about our possibilities and what we can achieve. It's good to be aware of these terms; thank you, very valuable. Knowledge is power. And I agree with you, we all like money.
Greetings. I am glad you found the information to be useful.. Keep exploring and learning.. Cheers
Why is it 9am to 5pm day job in your country? Here its 7-5.. dang! How cruel..
Anyways, your guidelines on return is very informative. Thanks for sharing!
7 to 5 is like to early start here in India. I am glad you like the information on the income types and it's return. Stay tuned for more updates on general traditional finance. Cheers
yeah thanks! I am still learning with this things so what I am reading in your post really educate me.
I love dividend income!
I love all the passive income coming in.. We all do.. Cheers
Keep it rockin my bro, we need that income setup for sure. Hive might be a part of it right? Appreciate your votes on my posts too bro, ill look out for your next one.
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Yes for sure #HIVE is part of it in my plan. And over year I have been building it and will continue to build for now that is the plan. cheers
We are seeing this in physical work as well, that the one who has more investment gets more profit and the one who has less investment gets less profit. That is why I am saying here that a person who always earns his living in life can be successful. We will not see a person who works as a worker arriving in a big car, only a business person will.
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