In 1981, two economists, Richard Thaler and H.M. Shefrin, published a paper that posed a fascinating question: Why do people struggle to save money, even when they know it’s in their best interest? Their answer was simple but profound: because human beings are often torn between two selves—the “planner” who thinks long-term and the “doer” who lives in the moment. The planner sets financial goals. The doer wants to order takeout.
The same tension applies to passive income. The planner loves the idea—earning money without doing extra work. The doer, however, quickly realizes that most so-called “passive” income strategies demand something upfront: time, effort, maintenance. Rental properties need tenants. Dividend stocks require research. Even writing a book—a classic passive income dream—demands months (or years) of work before a single dollar arrives.
This is the paradox of passive income: it’s rarely passive at all. But what if there were truly a way to earn money with almost no effort?
Renting spare rooms vs renting stocks
Over the past decade, the modern sharing economy has transformed how we think about assets. People rent out their homes, their cars—some even rent out their driveways. What once sat idle now generates income. But there’s one category of assets that some investors overlook: their investments themselves.
In capital markets, supply and demand are constantly at play. Some investors need to borrow stocks, bonds, or ETFs to execute trades. And where there’s demand, there’s opportunity. Securities lending allows everyday investors to put their portfolios to work, earning additional income simply by holding onto the assets they already own.
No tenants. No research. No upkeep.
The faster way to passive income
Most sources of passive income require a relatively large trade-off. You put in time, effort, or money and, eventually, the income may follow. But securities lending flips that equation.
- You opt in your securities.
- When there’s demand, eligible securities are lent out—fully collateralized.
- You earn a lending fee, without lifting a finger.
Unlike other passive income strategies, securities lending requires minimal effort beyond the initial opt-in. It’s an invisible revenue stream that can run in the background of your portfolio. You simply set and collect.
But the real difference here isn’t just effort—it’s time. Real estate investors spend months preparing a rental property. Writers take years to finish a book. Securities lending can be switched on in seconds, and the potential can be significant.
Of course, as with any financial strategy, securities lending isn’t without risk. While your securities remain yours, they are temporarily out on loan, meaning there’s always an element of counterparty risk. This is risk that the borrower may default and not return your securities. However, strict regulations and overcollateralization (insurance worth more than the value of the loan) help manage these risks and protect investors, making securities lending a relatively low-risk way to enhance portfolio returns. Read more about the risks and how they’re mitigated here.
Give your portfolio a side hustle
We tend to assume that earning more money means doing more work. Securities lending challenges that assumption. It’s a system that rewards investors not for taking action, but for staying put—for holding onto what they already own.
The planner in us loves this idea: a way to increase returns while effectively managing risk and without the extra responsibility. But the doer? The doer is thrilled because, for once, passive income actually means passive.
