I\u2019ve been focused on building passive income<\/a> since 1999, back when I had to be in the office by 5:30 a.m. and worked past 7 p.m. often. Weekends were another eight hours or so. I knew I couldn\u2019t sustain a traditional 40-year career working those kinds of hours, so I began saving and investing aggressively to break free by 40.<\/p>\n Now I\u2019m focused again on building enough passive income to fully cover our family\u2019s desired living expenses by December 31, 2027. And I\u2019ve been reminded of an ongoing battle: the trade-off between generating risk-free passive income versus taking risk to earn higher potential returns.<\/p>\n As I\u2019ve gotten older, I\u2019ve become more risk-averse, partly because the dollar amounts at stake have grown.<\/p>\n Losing $20,000 on a $100,000 portfolio feels like a kick in the shins. But watching $1 million evaporate from a $5 million portfolio? That hits like you like a truck crossing the sidewalk. Without any day job income\u2014as is the case for me and my wife\u2014losses of that magnitude can feel unbearable.<\/p>\n <\/p>\n One important takeaway from building a rich Bank of Mom and Dad<\/a> is that it gives your adult children the\u00a0option<\/em>\u00a0to take more risks. The more risks they can afford to take, the higher their potential for financial success. <\/p>\n It\u2019s like shooting 100 three-pointers at a pitiful 10% accuracy versus just 10 shots at an incredible 60%. Although you may be a far more talented shooter, you’ll still lose to the volume shooter. This is why a lot of rich people from rich families have an unfair advantage and keep getting richer. <\/p>\n But before you can be a supportive bank for your kids, you need to be a strong bank for yourself. <\/p>\n Ironically, the more risk-free passive income I earn, the\u00a0less<\/em>\u00a0motivated I feel to take on risk. And with less desire to take risk comes less potential wealth in the future. <\/p>\n Fear, complacency, and diminished wealth are the hidden dangers of relying too heavily on risk-free passive income.<\/p>\n Let me explain further. <\/p>\n In May 2025, I began trimming some of the stock positions I bought during the March\u2013April dip<\/a>. I had just sold a property in March and begun reinvesting most of the proceeds in the stock market. At first, I was losing my shirt as the stock market kept dipping through the first half of April. Then, my portfolio began to recover and profit.<\/p>\n I’m in the process of moving from a 100% equities portfolio to around a 60\/40 split<\/a> between equities and Treasuries\/cash. I had invested over $1.35 million in stocks during the downturn and it was stressful. In retrospect, going all-in on my public investment portfolio that I rely on to provide for my wife and me to stay unemployed felt reckless. I was relieved to have a second chance to de-risk and rebalance.<\/p>\n That month, my Fidelity money market fund (SPAXX) paid me $1,847.62. Annualized, that\u2019s $22,171 in risk-free income just for keeping a chunk of cash parked. That return, at 4%, required no stress, no tenant calls, no market-timing<\/a> anxiety, and no risk. It felt amazing! I want to earn more risk-free passive income. <\/p>\n However, as the S&P 500 continues to climb, that amazing feeling gradually fades. This is a fundamental struggle every investor must face\u2014the tension between feeling secure and still wanting more. After all, roughly 75% of the time, the S&P 500 delivers a positive return in any given year.<\/p>\n Thanks to the rise in interest rates, we all<\/em> now have the opportunity to earn more\u00a0risk-free<\/em>\u00a0passive income. As a result, we not only have to weigh how we feel about earning different types of\u00a0risk-required<\/em>\u00a0passive income, but also how we feel about earning risk-free income<\/em> versus taking on more risk for potentially higher returns.<\/p>\n As an investor, we must always think about opportunity cost. <\/p>\n For example, comparing risk-required<\/em> passive income from a dividend aristocrat ETF like NOBL, which yields about 2.15%, with income from an S&P 500 ETF like SPY, which yields around 1.25%, isn\u2019t a huge leap. NOBL may be slightly less volatile since it holds cash-rich, large-cap names.<\/p>\n But compare either of those to earning 4% risk-free in a money market fund, and the difference in feeling can be stark. After a 20% market dip, trying to claw back to a 10% historical annual return feels exhausting. Earning 4% with no drama felt\u00a0peaceful<\/em>. <\/p>\n At the same time, I didn\u2019t have to manage tenants or respond to maintenance issues like I do as a landlord. Even though I\u2019m bullish on San Francisco single-family homes over the long term\u2014thanks to the AI boom<\/a>\u2014I still preferred the risk-free income at this high rate. <\/p>\n This easy, risk-free passive income has made me\u00a0less<\/em>\u00a0motivated to chase bigger returns, which is a problem if I want to hit my $380,000 passive income goal by December 31, 2027. <\/p>\n This is the curse of the rising risk-free rate of return. When the risk-free rate was under 1%, it was much easier to invest aggressively in risk assets. <\/p>\n I still have a $60,000 shortfall in gross passive income<\/a>. To close that gap, I\u2019d need to accumulate another $1.5 million in capital in under three years, no small feat without a high-paying job or a financial windfall.<\/p>\n Authors don\u2019t make much money. A typical book advance is around $10,000. Even a top 1% advance\u2014starting at $250,000\u2014is paid out over several years. Meanwhile, AI is eroding search engine traffic and attribution, weakening online income<\/a> for independent publishers who write all their work like me.<\/p>\n Treasury bonds and money market funds likely won\u2019t get me there in time. The main way to achieve my goal of accumulating $1.5 million or more is to take more risk by investing in risk assets. <\/p>\n Imagine entirely sitting out the 2023 and 2024 bull market with back-to-back 20%+ gains given you found risk-free Treasuries yielding over 4% too enticing. Sure, you’d still be up, but you’d lag far behind those who went all-in on stocks. Over time, focusing too much on risk-free passive income could, ironically, make you poorer.<\/p>\n It\u2019s the dividend vs. growth stock dilemma<\/a>: dividend-paying companies are considered safer and often return cash because they\u2019ve run out of better investment opportunities, while growth companies reinvest 100% of earnings to capture potentially higher returns. In this case of risk-free passive income, the dividend-paying company is the U.S. government.<\/p>\n For over 25 years, I’ve invested almost entirely in growth stocks. This is now changing thanks to age, wealth, and higher risk-free rates. <\/p>\n Let\u2019s say you have a $5 million stock portfolio. To generate an additional $1.5 million in capital, you\u2019d need a 30% return\u2014possible over three years. But stocks could just as easily go nowhere or even decline, especially with valuations already stretched.<\/p>\n Remember, if stocks stagnate for three years, you\u2019re effectively losing money compared to what you\u00a0could<\/em>\u00a0have earned in a risk-free investment over the same period.<\/p>\n Given today\u2019s high valuations, many analysts are forecasting low single-digit returns going forward. Below is a chart showing Vanguard\u2019s 10-year forecast for equities, fixed income, commodities, and inflation from 2025 to 2035. So far, it’s actually quite prescient with U.S. equities struggling while global equities outpetforming. <\/p>\n A 3%\u20135% annual return in U.S. equities isn\u2019t exactly exciting given the risks involved.<\/p>\n Now imagine putting that $5 million into 10-year Treasuries yielding 4.5%. That generates $225,000 a year\u2014guaranteed. So compelling! It would take six years to grow from $5 million to $6.5 million, but it\u2019s essentially a sure thing. If you believe Vanguard\u2019s U.S. equities forecast of 3%\u20135% annual returns over the next 10 years, why not lock in a 4.5% risk-free return today?<\/p>\n Would you risk allocating 100% of your portfolio in equities just to\u00a0maybe<\/em>\u00a0get there in three years? After two strong years (2023 and 2024), another three years of 9%+ annual returns to get to $6.5 million would be extraordinary, but that outcome is far from guaranteed.<\/p>\n Yet most of us still take some risk, driven by hope and greed<\/a>. We hope that AI will permanently boost productivity and reset stock valuations higher. We also greedily want even more returns than the historical average. <\/p>\n I’m no longer as greedy as I was in my 20s and 30s, partly because I’m more financially comfortable today. The other reason is the much higher risk-free rate of return.<\/p>\n As a result, it makes sense to increase the bond or cash portion of your portfolio if it’s offering higher returns.<\/p>\n With 40% in Treasuries held to maturity, a $5 million portfolio generates $90,000\u2013$112,500 in risk-free income. With 60% in equities, there\u2019s still meaningful upside potential without putting everything on the line.<\/p>\n Historically, a 60\/40 stocks and bonds portfolio has returned about 9.1%. A 100% stock portfolio has returned about 10.3%. That 1.2% gap adds up over decades. But if you’re later in your financial journey, the tradeoff may not be worth it. A 100% stock portfolio can suffer much steeper drawdowns\u2014up to 85% more based on history.<\/p>\n At this point in my life, I\u2019m content with a steady 5%\u20138% annual return in my taxable portfolio for survival<\/a>. Based on history, a 30% stock \/ 70% bond portfolio would suffice. <\/p>\n Yet, because of my lingering greed, I’m constructing a 60\/40 portfolio instead. Further, I\u2019m still 100% invested in public stocks across all my tax-advantaged retirement accounts, my kids\u2019 custodial accounts, and their Roth IRAs.<\/p>\n In other words, I\u2019ve taken a more conservative approach with the portfolio I rely on to support my family today, and a more aggressive approach with the portfolios that won\u2019t be touched for 15+ years. Unfortunately, I feel the job market is bleak for my children, so I want to hedge by investing more for their futures. <\/p>\n If you want to retire early, building a large taxable portfolio beyond your tax-advantaged accounts is essential. This is the portfolio that generates passive income and provides tappable equity<\/a>\u2014without penalties\u2014to live on. Not building a large taxable portfolio consistently comes up as one of the top regrets for older workers and retirees. <\/p>\n If you\u2019re under 40, feel free to take more risk. You\u2019ve got time, energy, and decades of work ahead to recover from losses. I wish I had taken more risk in my 20s and 30s for sure. Here’s my suggested asset allocation for stocks and bonds by age<\/a>. <\/p>\n But when you\u2019re over 40, with family obligations and reduced energy, it\u2019s different. You don\u2019t want to lose the wealth you\u2019ve spent 20+ years building. Reducing your risk exposure as your risk tolerance fades is a wise move. <\/p>\n For me, I\u2019m tired from being a stay-at-home parent and writing my second traditional book, Millionaire Milestones<\/a><\/strong>. By 2027, I\u2019ll be 50, holy crap! Where did all the time go?<\/p>\n I plan to publish a third and final book, then transition into a more traditional retirement lifestyle\u2014one with less doing and more being. By then, AI might have rendered\u00a0Financial Samurai<\/em>\u00a0obsolete or automated me out of the process entirely. Who knows? Maybe lived experiences from real human beings will no longer be in demand.<\/p>\n I\u2019ll keep saving and investing 50% of any income, splitting a portion of it between stocks and bonds at a 60\/40 ratio. I\u2019ll also continue allocating capital to private AI companies through platforms like Fundrise Venture<\/a><\/strong> to stay in the game. Frankly, every $1,000 I invest in AI makes me feel a little less worried about my children’s future. <\/p>\n But I won\u2019t be going overweight in public stocks anytime soon with valuations around ~22X forward earnings. Until I sold my house, I never had this much cash available to take advantage of higher interest rates. While climbing the property ladder<\/a>, I was always saving to buy a nicer home.<\/p>\n Now, I have no more material wants<\/strong> that can\u2019t be covered by cash flow. Tennis shoes don’t cost too much. And the risk-free passive income I can earn today is simply too good to pass up.<\/p>\n A high risk-free rate is a double-edged sword. On the one hand, it offers comfort and stability. But if you lean on it too heavily too early, you might delay reaching financial independence. The longer you delay, the harder it becomes to catch up\u2014often requiring more risk when you’re least comfortable taking it. <\/p>\n On the other hand, if you’re close to financial independence or already retired, today\u2019s elevated rates are a gift. When I left work in 2012, the 10-year Treasury yield was just 1.6%. I had to go risk-on with stocks and real estate. Now, earning 4%\u20134.5% risk-free feels like a blessing, especially with a family to support.<\/p>\n Sweet, risk-free passive income has never felt so good, but it likely won\u2019t last forever. And that could be a good thing!<\/p>\n Readers, what are your thoughts on becoming more risk-averse as you earn more passive income over time? Has your focus on investing in dividend stocks or earning higher yields\/income actually throttled your wealth-building potential? Are you willing to risk more money for greater returns that you don’t need? <\/em><\/p>\n Listen and subscribe to The Financial Samurai podcast on\u00a0Apple<\/strong><\/a>\u00a0or\u00a0Spotify<\/strong><\/a>. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Your shares, ratings, and reviews are appreciated.<\/p>\nThis post will cover the following important topics:<\/h3>\n
\n
Earning Risk-Free Passive Income Can Make You More Fearful <\/h2>\n
From Taking A Lot Of Risk To Throttling Back Risk<\/h2>\n
![\"Risk-free](\"https:\/\/i2.wp.com\/financialsamurai.com\/wp-content\/uploads\/2025\/06\/passive-income.png\")
<\/figure>\nRisk-Free Passive Income vs. Risk-Required Passive Income<\/strong><\/h2>\n
Too Much Focus On Earning Risk-Free Income Can Make You Less Wealthy Over Time<\/h2>\n
Principal Growth Versus Income Dilemma<\/h2>\n
![\"Vanguard](\"https:\/\/i2.wp.com\/financialsamurai.com\/wp-content\/uploads\/2024\/10\/vanguard-10-year-forecast-stocks-2024-2034.png\")
<\/figure>\nThe Guaranteed Path Can Lull You Into Complacency<\/h2>\n
Higher Risk-Free Passive Income Should Result In A More Balanced Portfolio<\/h2>\n
![\"Balanced](\"https:\/\/i2.wp.com\/financialsamurai.com\/wp-content\/uploads\/2025\/06\/balanced-portfolio-composition-60-40.png\")
<\/a><\/figure>\nThe Importance Of Sticking To Your Financial Goals<\/h2>\n
![\"Growth](\"https:\/\/i2.wp.com\/financialsamurai.com\/wp-content\/uploads\/2025\/06\/growth-portfolio-composition.png\")
Age and Stage Matter For How You Invest<\/h2>\n
So I\u2019m embracing preservation more today. <\/h4>\n
The Gift and Risk of a High Risk-Free Rate<\/strong><\/h2>\n
Subscribe To Financial Samurai\u00a0<\/h2>\n