Upon leaving his investment banking position in 2012, Dogen, the founder of Financial Samurai and the author of “Buy This, Not That,” had already amassed an annual income of about $80,000 from various sources outside the traditional office setting. With a substantial severance package negotiated during his exit, he initially deemed this income sufficient for his living expenses.
However, as circumstances changed, with a decision to settle in San Francisco and raise a family, the family’s cost of living increased. Dogen strategically reinvested his passive income, combined with earnings from his website and book sales, to augment the family’s financial inflow over the years.
By 2023, “Dogen’s passive income portfolio, encompassing stocks, bonds, real estate, and more, yielded approximately $380,000.”
For those aspiring to cultivate a similar passive income stream, Dogen suggests starting, even without the support of an investment banker’s salary or severance package. He recommends using your brokerage account as the entry point.
The headline on Dogen’s post reads, “Blew Up My Passive Income, No Longer Financially Independent.” That’s true, although like all good headlines, it makes things sound sudden and exciting and new.
Dogen highlights Treasury bonds, particularly short-dated ones or T-bills, as an attractive option due to their safety and current favorable interest rates. With 1-year Treasury bonds offering around 5% returns, he considers them a remarkable choice for immediate passive income, free from state income tax on the interest.
Passive income can also be generated through stock investments. Dogen allocates a significant portion of his equity holdings to an index fund tracking the S&P 500, which, despite being a broad market index, produces income with an average yield of 1.5%. For those seeking higher yields, Dogen recommends dividend-focused mutual funds or exchange-traded funds, especially those tracking “Dividend Aristocrats” with a history of maintaining and increasing dividends.
While real estate can contribute to passive income, Dogen cautions that it involves more active participation. Managing rental properties demands time and effort, making it a semi-passive endeavor with potential headaches. Instead of traditional index funds, he leans towards sector-specific exchange-traded funds (ETFs). These ETFs, focusing on areas with growth potential, have proven to be a lucrative source of income for Sarah.
For those eager to replicate Dogen’s success, he advocates starting the passive income journey with accessible tools, even if you don’t have the safety net of a golden parachute or a hefty corporate paycheck. According to Sarah, a brokerage account is your gateway to financial freedom.
Dogen advises starting the passive income journey with stock and bond investments, given their advantages of low entry barriers and true passivity. Regarding real estate, he suggests achieving “neutral” status by owning your primary residence, which provides stability in housing costs and potential equity appreciation over time.
When it comes to real estate, Dogen offers a unique perspective. While acknowledging its potential, she emphasizes the importance of cautious entry. Dogen suggests considering Real Estate Investment Trusts (REITs) as a less hands-on alternative to direct property ownership, providing a passive way to benefit from real estate income.
In summary, Sam Dogen’s insights emphasize starting with accessible and truly passive income sources, gradually expanding to more involved investments like real estate, and ultimately reaching a state of financial neutrality for a more comfortable life. His story underscores the importance of adapting to life’s changes, making informed investment choices, and gradually building a diversified portfolio. Whether you’re just starting or looking to enhance your passive income streams, Dogen’s insights serve as a valuable guide on the path to financial independence.