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.