Passive income is a pretty hot topic these days, as people get tired of working for income, the idea of passive income becomes very intriguing. Here are 5 ways to create passive income.
1. Property / Real Estate
Here's our mistakes. Don't do the same.
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
Property investing in general can provide one of the highest returns due to the leverage it offers. By leveraging on the bank loan, one can purchase a property many times the value of the down payment required. For example, if you can get a Loan To Valuation ratio of 80%, you are purchasing a property worth 5 times more than your down payment, effectively having 500% leverage. You can then rent out the property for passive income, assuming a good rental yield, you should have positive cash flow after accounting for the loan repayment and other costs. The problem with property investments is that they are very illiquid; it can be very difficult to sell especially in a down time. Leverage is also a double edged sword, should you purchase an overpriced property, and there could be a chance where the value of the property falls below the loan amount, leaving you with negative equity.
2. Dividend Stocks
Stocks that pay dividends regularly are normally stable businesses such retail REITs and telcos; which are less prone to market cyclicality. It can be a rather long process waiting for the dividends, however, the dividend income eventually becomes substantial if you accumulate them in a disciplined manner. For example, if you had $1 million invested, a 4% dividend yield would already give you $40k income a year, which is pretty decent. By compounding the dividend payments, your returns will be much higher. See 5 Reasons Why You Should Invest In Dividend Stocks
3. Bonds/Fixed Income
There are 2 main types of bonds, government bonds and corporate bonds. Government bonds are available in small tranches and provide risk free short term returns for the interim period when you have no immediate use for the cash. Corporate bonds are generally only available to institutional investors as the minimum investment quantum can be as high as $250k. The exception is retail bonds like the CapitaMall Trust and CapitaMalls Asia retail bonds but there are not many of them around. In the longer term however, numerous studies have shown that equities beat bond returns consistently. The main problem with bonds is that the income is fixed; hence the name fixed income, while stocks have the ability to grow dividends and generate capital appreciation. In general though, bonds serve to diversify a stock portfolio.
4. Royalties/Intellectual Property
Royalties are income generated from books, music, movies etc. You can choose to write an award winning book, compose a chart topping song or film a blockbuster movie to create income streams from royalties. Writing books are the most common, where you pen down your thoughts and knowledge or imagination and get it published. After which, you will get paid with every book that is sold in the bookstore.
5. Online Marketing
Online businesses are normally retail setups with minimal costs and upkeep. Unlike brick and mortar stores, rental, renovation is not required and staff costs are absolutely minimal. These translate to high earning margins for any products sold through online websites. Online marketing usually refers to a fully automated website that is somewhat passive in nature in that it can close sales even when you are sleeping. They usually work on the premise of search engine optimizing for a niche product or service that is in demand but not well served by the current market.
About the Author
Calvin Yeo is the Managing Director of Doctor Wealth Pte Ltd (www.drwealth.com), which is an online financial planning platform. He is also a Chartered Financial Analyst (CFA) as well as Certified Financial Planner (CFP).
For further reading, you may be interested in: