Disclaimer: I am not a certified financial planner, nor do I claim to be an expert regarding taxes. I am simply an individual sharing my philosophy on investing. Basically - I am not responsible for any decisions you make with your money!

Passive income is money that you earn while you’re sleeping.

You write a book, it takes you a year, but you earn royalties every time it’s sold without having to do additional work. Royalties are a form of passive income.

You buy a house and rent it out to some tenants. Rental income is another form of passive income.

Of course, both of these endeavors take more effort than the term “passive income” implies. As a landlord, you have to deal with collecting from late tenants, or fixing plumbing disasters. As an author these days, you need to travel the country on an exhausting schedule of readings and book signings to ramp up the publicity for your latest novel.

One of the most truly passive forms of income is earning dividends by investing in stocks. I have read several blog posts recently about investing in high-dividend-yield stocks in order to generate a steady stream of passive income.

Investing in dividend-yielding stocks is a great way to build passive income because it is easy, with no hassle. You also can only lose as much money as you put into it - with something like renting out a house, you open yourself up to liability issues, or having to fork out additional cash to fix any problems with the property.

Also, qualified dividends and long term capital gains currently are taxed at lower rates than ordinary income. Any passive income you earn through royalties, or even ad revenue from your blog, is taxed at your regular (higher) tax rate. Additionally, sometime like ad revenue from your blog would be subject to additional taxes from having to pay both halves of employment tax.

Essentially, the government wants us to buy stocks, because investing is good for the economy. Also, a lot of rich people own stocks. This means that the government wants to reward you with lower taxes for putting your money into this type of investment.

Do you have an investing strategy? Should I be buying high dividend yield stocks instead of high growth? (Maybe when I have a bigger chunk of change to invest into stocks directly!)