Passive income is income that you earn from doing next to nothing – hence the term passive.

However, passive income doesn’t just fall into your lap. You must first set the wheels in motion to be able to enjoy the fruits of your labor for years to come.

But first, why do people want (or need) a passive income portfolio?

With passive income, you no longer rely on your job to generate income. You don’t work because you need the money to get by, but because you want to. This also gives you the option of early retirement.

However, a few hundred dollars of passive income is hardly enough. The goal here is to have sufficient residual income to cover all of your monthly expenses.

This is how you can expand your passive income portfolio in Singapore.

6 ways to build your passive income portfolio

1. Earn rental income from property

An easy way to get residual income is to rent out your home (or room in your home).

The amount of rental income depends on the current demand in the real estate market, as well as factors such as the type of property, the condition of the house, the location and many more.

Note that rental income is not immediately profitable. You need to consider your home loan payments, as well as the cost of stamp duty and renovation or repair work. In the long run, your profits will increase after the rental income has offset any costs incurred.

To become an ace at investing in real estate, check out our guide to real estate investing here.

2. Dividend Income From Stocks

Buying a home for a million dollars is not something you can do the next day. However, you can invest in stocks that pay dividends.

Companies pay dividends to their shareholders every year. However, not all companies pay dividends and are not required to do so.

So what counts as a high dividend yield? A good measure would be a return of 4 percent and more. To build a passive income portfolio, there are two main types of stocks to consider: real estate investment trusts (REITs) and blue chip stocks.

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REITs are known to have high dividend yields of 4 to 8 percent as they are required to distribute at least 90 percent of their taxable income each year. When you invest in a REIT, you are investing in a company that is essentially a landlord, collecting rent, and distributing the rental income back to shareholders as dividends.

Blue chip stocks refer to large and established companies that retail investors would easily recognize. Think along the lines of DBS, OCBC, CapitaLand, Sheng Siong, Dairy Farm, Singtel and more. In the US, blue chip stocks include Apple, Coca-Cola, Procter & Gamble, McDonald’s, Berkshire Hathaway, and others. These blue-chip stocks have historically rewarded shareholders with attractive dividends.

These dividends are paid out regularly – this can be done once a year, every six months, or even four times a year. Some companies also offer stock dividends, where you receive dividends in the form of stocks. The payout date varies from stock to stock and you can find out when the dividend will be paid out based on the information on their website.

3. Dividend income from Exchange Traded Funds (ETFs)

If you’re not keen on picking a single stock or a handful of stocks to add to your dividend portfolio, you can invest in ETFs instead. ETFs are a basket of securities that are offered at an affordable price and are designed to track an index. ETFs are listed on the stock exchange like stocks and can reward their shareholders with dividends.

For example, the Nikko AM STI ETF and the SPDR STI ETF both track the Straits Times Index (STI) – an index that includes the top 30 stocks in Singapore. Investing in such an ETF will give you exposure to the top 30 Singapore companies and generate dividend income every year. In 2020, the Nikko AM STI ETF gave $ 0.1268 per security. This means that if you hold 10,000 shares of the Nikko AM STI ETF, you’ll get dividends this year for a total of $ 1,268.

When you invest in dividend-yielding stocks or ETFs, the sooner you add it to your portfolio, the faster you can harness the power of compounding. This is especially true in your younger years when you are not relying on the dividends for income but instead reinvesting them.

4. Receive regular coupon payments by purchasing bonds

Bonds or fixed income products are considered to be one of the safer investment options.

When you buy a bond offered by a company, you are effectively lending your money to the company in exchange for fixed coupon payouts. With bonds, you have more security and transparency about your coupon payouts and the date of the payouts.

Take the wildly oversubscribed Astrea VI bonds, for example. If you have been successfully allocated Astrea VI Bonds, you will receive 3 percent of your principal every six months on March 18 and September 18 of each year. Your principal can be redeemed after five years or up to ten years.

One popular low-risk bond to buy is the Singapore Savings Bonds (SSBs), which offer modest yields of between 1 and 2 percent with little to no risk.

However, there is less liquidity with bonds. Although they can be bought and sold in the open market, there may be a lack of buyers willing to buy the bonds you hold. You also need to be willing to hold the bond to maturity. With the Astrea VI bond, bondholders must be prepared to hold it for at least five years.

5. Generate income through a fund or robo-advisor

In addition to ETFs, there are also mutual funds or mutual funds that you can purchase. This can be purchased through an investment platform, a robo-advisor, or an insurance company.

A handful of robo-advisors also have income generating portfolios.

ALSO READ: Best Robo-Advisor in Singapore: How to Pick the Right One?

For example, StashAway’s income portfolio aims to generate income by investing in ETFs made up of bonds, REITs, and dividend stocks. This is also their only portfolio with a minimum investment requirement of $ 10,000. The dividends this portfolio generates can be used to reinvest the dividends or have the payouts sent to your bank account or SRS account.

More recently, MoneyOwl Fullerton launched MoneyOwl WiseIncome, a fund designed to help secure your retirement by providing you with a steady stream of passive income.

6. Monthly payouts with an annuity plan

In addition to building your own passive income portfolio, you can also consider buying a retirement plan if you are looking for monthly payouts during your retirement.

Annuity plans are retirement plans that you can purchase from insurance companies in Singapore.

When you purchase a retirement plan, you can choose to pay a single premium or regular premiums for a set period of time during your years of employment. When you reach retirement age, this plan gives you monthly payouts for the number of years specified in the plan or for your life, depending on the policy you have purchased.

Sounds familiar? This is what CPF LIFE (our National Old Age Pension Insurance Scheme) offers, and retirement plans can be the extra layer on top of what we get from our CPF LIFE. Check out some of the best retirement plans in Singapore here.

How much passive income do you need?

How much money do you need to get each month? This is the residual income you need to enjoy financial independence and early retirement.

According to this article from SCMP, it will take you $ 3.23 million (S $ 4.3 million) to achieve financial freedom in Singapore.

This amount of passive income would vary from person to person as it depends on your lifestyle and your idea of ​​a dream pension. For example, someone with plans to travel overseas frequently would need more money to buffer those expenses. You would also need to consider the financial obligations that you will need to meet, such as: B. Financing your child’s education and paying off your mortgage.

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However, your monthly passive income does not have to be very high if you want to lead a simple and frugal lifestyle.

Once you figure out how much residual income you need, you can work backwards to calculate how much you need in investments (or how much rent you need to generate) to get there.

For example, if you need $ 4,000 per month ($ 48,000 per year), you need to own 96,000 shares to invest in a stock that pays dividends of $ 0.50 per share annually. If the stock is trading at $ 10, that equates to an investment of $ 960,000 in this company.

Knowing that you are dragging your feet while figuring out your next course of action can cut the opportunity cost and get your money going in the meantime by investing with a robo-advisor. This will help you grow your money while you take the steps necessary to build your passive income stream.

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