What type of income is typically earned from investments in stocks and bonds?

Portfolio income refers to the earnings generated from various investments that are not derived from a trade or business activity. This category specifically includes income earned from stocks and bonds, such as dividends, interest, and capital gains.

When individuals invest in stocks, they may receive dividends as a distribution of a company's profits, which constitute portfolio income. Similarly, interest earned from bonds is also classified under portfolio income.

Understanding this distinction is crucial for effective financial planning and investment strategy, as different types of income can be subject to varying tax treatments and investment implications. For instance, distinguishing portfolio income from active income, which is income earned from employment or running a business, is essential in tax reporting and in understanding one's cash flow sources.