Passive income is one of the most important ways to get rich and stay wealthy. It is the secret to gaining wealth, and it is also how you can earn money while not working. By having a passive income, you won’t have to work a 9-to-5 job every day, and you will no longer have to worry about the paycheck. By giving you financial stability, it can relieve you of your stress, letting you pursue your hobbies and interests.
But achieving a passive income is not an easy feat, and you have to work hard for it. It takes a lot of effort and commitment on your side, but once you have invested enough, you can have a steady flow of income. Although challenging, there is no need to be intimidated. All you have to do is plan out a strategy and commit to it. And here is how you do that.
Consider Your Options
In Singapore, there are many ways you can earn a passive income. This means you have to find the right investment option that suits your goals and expectations, and that works for you. Here are some of the best investment options.
Stocks
Stocks in Singapore are quite attractive for two reasons. First, thanks to the one-tier corporate tax system, dividends from the shares are distributed after the corporate tax has been paid; hence, it is tax-free. Second, the profits are paid regularly which means a regular inflow of money. Although it takes time to build this profile, the returns are quite substantial, and hence, worth it.
What you have to look for here are stable businesses and firms that offer stable stocks. Your best options in stocks are retail REITs, telcos, and blue chip stocks. These stocks are generally less sensitive to economic and market cycles, making them safer to invest in.
Bonds
There are two types of bonds you can buy in Singapore, government bonds and corporate bonds. The government bonds are risk-free and have short term returns, and you can buy them in small portions. On the other hand, corporate bonds are only available to institutional investors, and most of them have a very high minimum investment limit. They are also tax-free and have a low-yield and fixed incomes.
Compared to stocks, bonds are a lot safer and ensure a high degree of capital guarantee. Moreover, stocks holders are ranked lower than bond holders, so bond holders get the profits first. One downside to bonds is that there are only limited options in Singapore that you can choose from.
Real Estate
Nothing beats the returns that real estate investments offer, especially in Singapore. They provide steady income over time, so all you have to do is rent out our second house. If you don’t have a home, you can also take a home-loan and use the rent to pay the loan. Even if you have a mortgage, you will get good returns thanks to the leverage it offers to the banks. That is, you can get a loan valuation of 80% that equates to 500% leverare.
However, one downside to real estate investments is that they are harder to sell down the line, and can take a long time to get rid of. This can be an issue in down time when you need some money. On the other hand, stocks and bonds are relatively easy to sell.
Find the Right Strategy
The next step for you is to strategize the right plan. To do so, you have to find what works for you, how long you are willing to invest, and what you expect from the returns. With these in mind, you should also look for the following things in your strategy.
Safety
You need to ensure that your investment is safe, especially if you are planning to buy stocks or bonds. Before committing, you should do thorough research on the company, its market performance, and its returns. You must do this so you can avoid significant risks with your investment.
Growth
Similar to safety, growth is also essential. By doing research on your options, you should also consider how likely the stocks, bonds, or the property rates are going to grow in the future. Beware of any market bubbles, or potential market risks when it comes to growth.
Diversity
Lastly, you need to ensure your portfolio is diverse. Instead of investing S$10,000 in two options, you should spend the same amount in four or five (and even ten) options. This will minimize the risk significantly. And also, it is easier to sell an S$1000 bond or stock than selling S$2500 bond or stock.
Set a Realistic Goal
The next step is to establish a realistic goal for yourself. Avoid listening to the market gurus, as their goals might differ from yours. So, it would be best if you considered your own goals per your situation and budget. You can set your goal in one of two ways, you can either go with a cashflow growth or a capital goal. And lastly, your goal should be realistic.
Start Investing ASAP
Now that you have everything in place, all you have to do is commit and start investing. This is probably the hardest part as you will be spending a lot of money by going out of your comfort zone, but it is totally worth it. Once you reach your goal, you will be thankful that you invested so much time and energy in the first place.
Keep a Regular Check on Growth
One important thing that you need to keep doing while investing and building your passive income is to keep a regular check on the growth you are making. You should do this at least once a year by analyzing your portfolio. This will keep you up-to-date and warn you of any potential risk in the future.
By doing all these, you will gradually build up a portfolio that will earn you a high income. All it needs is patience, commitment, and investment. Following these steps, you can be rich and stay rich while also pursuing your hobbies and interests.
