The truth about passive income in Canada

• What is passive income? It’s income that requires significantly less ongoing work to maintain than a traditional job. The effort is front-loaded, meaning you work hard now to build an asset that generates income for you later.
• How do you make passive income? Most passive income ideas fall into two categories: building an active business (like a blog or online store) or building a portfolio of assets (like stocks and ETFs). The latter is the most direct path to truly passive income.
• Why does passive income matter? The true goal of passive income isn’t just extra cash. It’s creating the financial breathing room to take chances—to change careers, reduce your hours, or have the stability to turn a passion project into a business of its own.
• How to start making passive income: The most accessible way to begin is by opening a self-directed investing account, making consistent contributions, and buying dividend investments that pay you to own them.

The secret those viral posts about passive income won’t tell you

You’ve seen them before, and you’ve probably wanted to believe them, because that’s the point—to make you believe, not to tell you the truth.

Flashy claims delivered with a convincing confidence, assuring you that they’re making money while they sleep. Enough money, even, to not have to work anymore.

But the glossy promises cover up the important truth: passive income isn’t effortless. At least not in the beginning. It frontloads the effort so that, one day, the money can roll in with less labour.

The top 3 passive income myths that will hold you back

Before you try out passive income strategies, it’s important to separate facts from fantasy. Your skeptical questions about passive income are valid, because much of what’s said online is misleading.

Myth #1: Passive means “no effort.”

The Truth: Passive income is about rearranging the effort, not eliminating it. Every legitimate stream of passive income requires a significant upfront investment of either time or money (and often both). Whether you spend two years building a blog audience or five years contributing to an investment portfolio, the work comes first. The “passive” part is the reward you earn for that initial, concentrated work.

Myth #2: You have to be an influencer or a creative genius.

The Truth: You just have to be a patient owner. The internet often highlights the loudest methods of earning passive income—becoming a YouTuber, creating a viral digital product, or building a massive social media following. While these paths exist, they are outliers. The most reliable and accessible path doesn’t require you to be a creator at all. It simply requires you to own small pieces of great businesses.

Myth #3: You need a lot of money to start.

The Truth: You can start with your next $10. The idea that you need a fortune to make a fortune is one of the biggest barriers for beginners. Thanks to benefits like commission-free trading and fractional shares, you can begin building an income-generating portfolio with small, consistent contributions. The habit outweighs the amount.

The two actual paths to passive income in Canada

Just like how some jobs will work better with your lifestyle and skillset than others, not every passive income strategy will work for everyone.

The first path: The business-builder

This is the path you see most often online. It involves creating something from scratch or converting your passion project into an income-generating business.

Examples include:

• Starting a blog or YouTube channel and earning ad revenue.
• Writing and selling a book or creating an online course.
• Building a drop-shipping store or an affiliate marketing website.

This path stems from your passion and creativity and it can be incredibly rewarding. One thing it won’t be, though, is easy. Executing on an idea at a level where it breaks through the attention barrier and rises to a place of viable income is hard. Overnight success stories only look sudden because they leave out all the nights before it that were necessary to reach that point. It demands a tremendous amount of active, ongoing work—from content creation and marketing to customer service and technical maintenance—before it generates a single dollar, let alone a passive one. Which isn’t to say you shouldn’t try. You have to be prepared, though. It can take years of consistent effort to build an audience large enough to create a reliable income stream. And that makes picking something you’re passionate about and enjoy independent of profits even more important.

The second path: The asset-builder

This path isn’t as flashy, so naturally, it’s less visible on social media. Often, it’s a more direct and truly passive pursuit over the long term, though. This path isn’t about creating a new business; it’s about becoming a part-owner of established, successful ones.

This path generates income in two primary ways:

1. Dividend investing: When you own stocks or ETFs that pay dividends, you’re receiving a share of the company's actual profits, typically paid out to you every few months. Think of it as a cash "thank you" for being an owner.
2. Index investing: You can buy a broad market index ETF, which holds hundreds or even thousands of stocks in a single, low-cost fund. This diversifies your holdings instantly and allows you to benefit from the overall growth of the economy. Historically, this has been one of the most effective long-term wealth-building strategies.

The data paints a compelling picture of index investing. Some of Canada's most established companies have paid dividends for decades, creating a reliable source of income for investors. In fact, research from RBC Global Asset Management has shown that from 1986 to 2023, Canadian stocks that consistently grew their dividends outperformed the broader TSX Composite Index, and they did so with less volatility.

The effort on this path is front-loaded in learning the fundamentals and, most importantly, in the discipline of saving and investing consistently. But once the system is in place, it requires significantly less active work to maintain.

Your action plan: How to walk the path of the asset-builder

There’s no wrong path—both can get you where you want to go. But, as Canada’s #1 online broker three years running, we’ve got some extra tips for how to create passive income by building a portfolio that works for you.

Step 1: Open a tax-sheltered account

Your first step is to open a self-directed investing account. A Tax-Free Savings Account (TFSA) is a powerful tool because all your investment growth and dividend income can be withdrawn completely tax-free. A Registered Retirement Savings Plan (RRSP) is ideal for long-term growth, as your gains are tax-deferred and your contributions are tax-deductible. You can open either account (or both) online in minutes.

Step 2: Make your first deposit and set up a schedule

You don’t need a lot of money to begin. Start with an amount that feels comfortable, and more importantly, set up automatic recurring deposits to align with your paydays. This discipline of "paying yourself first" is a renowned wealth-building habit.

Step 3: Choose your first investment

Maybe it’s a company you work for, or one you’re a fan of. Or, maybe, you don’t want to pick stocks at all and instead want to own a low-cost dividend ETF that holds a collection of top dividend-paying companies. Getting over the hurdle of that first trade is what matters most—you can always fine-tune your portfolio later.

Step 4: Automate your growth

True passive income comes from systems that work without your constant intervention. At Questrade, you can enable a Dividend Reinvestment Plan (DRIP), which automatically uses the dividends you receive to buy more shares of the same investment, creating a powerful compounding effect. As your portfolio grows, you can also enroll in the Fully Paid Securities Lending Program to potentially earn another stream of income from the assets you already own.

The real reason to set up passive income is better than the myths

It’s the freedom to take a chance on a new career path without the intense pressure of a pay cut. It's the security of knowing that a market downturn doesn’t have to be a catastrophe, because you have income streams independent of your primary job.

This is also where the two paths can come together.

Successfully building your assets (Path #2) can give you the financial breathing room and confidence to finally devote real time to your passion project (Path #1).

The income from your dividend portfolio could be what allows you to reduce your work hours to build that blog, record that podcast, or write that book.

One path can fund the other, creating a life where you are in control, actively building the future you want, supported by the passive assets you patiently accumulated.