Q&A with CMMB Securities

Q. I’ve been reading your column for some time and you seem to suggest that putting money into a regular savings account is wasteful. If that’s true, why are so many people still putting their money there ?

Sheila, St. Joseph

A:A savings account is a deposit account established to hold funds that are expected to stay in for the short-term. These accounts usually offer lower returns when compared to other types of investments. But they provide quick and easy access to the investor when funds are needed on short notice, especially if there are lots of day-to-day purchases. The ease and convenience of using a debit card to make purchases also encourages people to hold savings accounts. However, within recent times the emergence of Money Market Accounts provides a compelling alternative to savings accounts.

The advantage is that a Money Market Account provides all the benefits of a savings account i.e. flexibility, safety and ease of access, but with a much higher return. Individuals keeping money in an ordinary savings account would therefore be losing an opportunity to earn higher returns with an alternative of similar risk. Despite this, many individuals still maintain a regular savings account because it has been traditionally perceived to be the most safe and liquid investment available. Money Market Accounts are a relatively new addition to the marketplace and some investors would naturally be a little hesitant in moving from what they have known and trusted for years. However, the education process about new alternatives in the market is taking place slowly, but surely.

Q. I know what earned income is, but what is passive income?

Vinti, Gasparillo

A: First of all, let’s start with the basics. There are three types of income: active income, passive income, and portfolio income. Active income refers to income received for services performed in the form of wages, tips, salaries, commissions, and income from businesses in which there is material participation by the individual. Portfolio income refers to income from investments, including dividends, interest, royalties, and capital gains. Passive income refers to income gained, but not from physical participation by the individual. For example, income received from rental property, limited partnership and other enterprises for which the individual is not actively involved. So, the income you earn from your job is not passive income, but referred to as active income. Passive income can also be derived from passive investing. This is an investment strategy involving limited active management in which individuals purchase investments with the intention of long-term appreciation. Passive investing is also known as a “buy-and-hold” or “couch potato” strategy and requires good initial research, patience and a well-diversified portfolio.

Disclaimer for Articles:

“All information contained in this article has been obtained from sources that CMMB believes to be accurate and reliable. All opinions and estimates constitute the Author’s judgement as of the date of the article; however neither its accuracy and completeness nor the opinions based thereon are guaranteed. As such, no warranty, express or implied, as to the accuracy, timeliness or completeness of this article is given or made by CMMB in any form whatsoever. CMMB and/or its employees or directors may, where applicable, make markets and effect transactions, or have positions in securities or companies mentioned herein. Neither the information nor any opinion expressed, shall be construed to be, or constitute an offer or a solicitation to buy or sell.”