Investing 101
"Passive income" mostly comes from investments if you aren't doing things like collecting dividends from a famous media piece. These days, you can invest in a business through the stock market. The stock market (i.e., NASDAQ) is where businesses go to offer up portions of ownership of their business as "shares". When you buy a share in a company, that company's financial performance can increase the value of existing shares, but that value can also decrease if the company does poorly.
In order to start investing in companies and attempting to generate wealth, you'll need a brokerage account. In the US, most large banks like Chase, Wells Fargo, and Bank of America offer their customers the ability to open a brokerage account. Some financial institutions require very low or no initial deposits for brokerage accounts, but some large banks do. In my experience, Chase requires a $10,000 minimum deposit in order for a customer to open a brokerage account.
JPMC has two good introductory posts about portfolios and brokerage accounts. I copied some of the information from the post about portfolios.
Portfolio vs Brokerage Account
A portfolio is a collection of your stocks, bonds, cash, tangible physical assets, and so on: everything that makes up your net worth.
A brokerage account is a type of account financial institutions offer that provide mechanisms for buying, selling, and holding stocks, bonds, and shares of mutual funds.
A brokerage account is a type of portfolio in that it's a collection of the various securities - stocks, bonds, mutual funds, etc. - that make up the contents of your account.
Portfolio investment styles
Conservative:Conservative: choosing to invest in low-risk assets like bonds and mutual funds to preserve your initial investment and reap a smaller but more consistent reward
Aggressive:Aggressive: choosing "hot" and popular assets to get the most bang for your buck on investment; higher risk but higher return
Speculative:Speculative: "timing the market" - attempting to take advantage of the volatility of the markets to time buying assets at their lowest points and selling at their highest points
Hybrid:Hybrid: putting all of your eggs in different baskets, where you have a little of everything. You'll typically have all the usual suspects but in various states: bonds, aggressive and conservative stocks, foreign stock investments, physical items (i.e., gold) so that if any one of them goes south, the others still retain their value and any damage is mitigated.
A conservative (i.e., low-risk) portfolio might look like this:
- 60%–65% fixed-income securities
- 25%–30% equities
- 5%–15% cash or cash equivalents
A moderately aggressive (i.e., medium-risk) portfolio might look like this:
- 50%–55% equities
- 35%–40% fixed-income securities
- 5%–10% cash or cash equivalents
A very aggressive (i.e., high-risk) portfolio might look like this:
- 80%–100% equities
- 0%–10% fixed-income securities
- 0%–10% cash or cash equivalents
Isn't "hybrid" just...
Diversification? Yes. The process of diversifying your portfolio (broader portfolio or specifically brokerage account) is known as asset allocation and it's about figuring out where you're going to put your money.