How to earn passive income
While we might see no other choice but to slog it out 9 to 6 daily for a paycheck, there’s actually an alternative way of earning some extra cash that could give you more time and freedom to pursue other interests.
The secret to this financial freedom? Passive income – money that flows in even when you’re not actively working for it.
But it seems like a far-fetched task for non-financially-savvy folk like us – words like “dividends” and “fixed deposits” leave our minds blank. Not to worry fellow amateur investors, here are 6 ways to earn passive income through dividend distributions by or interests earned from:
1. Exchange Traded Funds (ETFs)
Investing in Exchange Traded Funds (ETFs) is one of the easiest ways to broaden your portfolio. They’re relatively affordable investments that give you exposure to a whole basket of diverse investment products, like stocks, bonds and even commodities.
Since these are usually made up of a “basket” of stocks or bonds that hail from different industries, there’ll be instant diversification. Other advantages of ETFs include:
- Flexibility – buy and sell easily
- Liquidity – easily traded during market hours
- Transparency – general list of securities published every day
- Cost efficiency – a single ETF contains a basket of diversified investments
- Accessibility – instant access to international markets
ETFs are managed by asset management firms, like Nikko Asset Management – an established firm that’s been providing ETFs in the Singapore market since 2005. You can try either of these 2 ways to start investing:
- Through a stockbroker or online trading platform by using cash or CPF (if applicable) OR
- Use a Regular Savings Plan (RSP), which you can easily start investing with just $100 a month.
RSPs are fuss-free since they automatically deduct a fixed sum monthly which goes straight to your investment. Just leave it there without having to mark it off your to-do list!
As for passive income, you’d be glad to note that ETFs sometimes yield dividend distributions. Think of it as a regular bonus from an extra-generous boss, and you barely have to lift a finger to get it once your investment strategy is set in place.
Note: Dividend distributions are not guaranteed.
2. Regular dividend payouts by stocks
Getting burnt by the stock market is certainly a rational fear – that’s why we should either pick blue-chip stocks from reputable companies or those that are less sensitive to market changes. But one way to earn passive income? Investing in stocks that have frequent and reliable dividend payouts.
Note: Having a higher dividend yield doesn’t suggest anything about the stock’s stability. Dividend distributions are not guaranteed.
3. High-yield savings account
Having a high-yield savings account is a good option for any beginner investor. To keep pace or even beat rising inflation, you need to ensure your savings account yields decent interest.
Some banks do offer higher interest rates – with up to 3.8% annually – but damn, do they make you work for it.
These schemes often require a set of criteria*: minimum monthly spend, salary credit, GIRO transactions – the list goes on. Another reason why you should always be on top of your finances, so you’ll know if you’re hitting that monthly spend!
*Varies from bank to bank. Terms and conditions apply.
4. Fixed deposits
Keeping your money in a fixed deposit is like a strict piggy bank – you wouldn’t be splurging on things you don’t need
When your weekend window shopping turns into a full-blown shopping splurge, then fixed deposits (FDs) might be the answer for you. You’re essentially locking in your money with the bank – for a fixed period of time and interest rate. And not only are you protected from spontaneous splurges, but you’ll also earn interest from them passively, too.
The good thing about FDs is that they are generally liquid – if necessary, you can take out the money to fuel short-term expenses, for instance, that dress you just bought. Stash away cash from just 3 months to a period of 2 years, with interest rates roughly between 1.55% to 2%*.
*Based on banks’ promotional rates here as of 2nd July 2019. Other T&Cs apply.
5. Singapore Savings Bond (SSB)
It doesn’t get any more trustworthy than the Singapore Savings Bond (SSB), a security that’s backed by our very own government. You’ll need a minimum investment of $500 with interest rates starting from roughly 1.93%* – payments are made every 6 months. That means cash rolling in passively twice a year!
Many are conflicted between fixed deposits and SSB, but the main difference is that the latter is a long-term investment and you can hold your money there for 10 years. You can also take your money out whenever you want.
*For bond issue on 1st Jul 2019.
Find out more about the Singapore Savings Bond here.
6. Real Estate Investment Trust (REIT)
When you can’t buy your own home, you can certainly invest in REITs
It’s an old adage but true: real estate is generally a good investment you can make over the long term. But since not all of us can afford a home – much less a second property for rental income – it’s a lot more practical to invest in Real Estate Investment Trust (REITs) and earn passive income through the dividends.
These are listed trusts that own properties, so whatever rental income they make – a portion is also paid to you as dividends. You can also invest in REITs through ETFs, like NikkoAM-StraitsTrading Asia ex Japan REIT ETF which gives investors access to Asia’s well-known REITs.
Note: Dividend distributions are not guaranteed.
Investing with Nikko Asset Management
There’s certainly a range of investments to consider: stocks with dividends, savings account, ETFs, fixed deposits or SSB? It’s completely natural if you’re still perplexed – we all are.
But if you’d like to try investing on your own with diversified risks, ETFs could be the way to go. For example, Nikko Asset Management has Exchange Traded Funds (ETFs) like:
1. ABF Singapore Bond Index Fund
The ABF Singapore Bond Index Fund is Singapore’s first ETF bond fund and invests mostly in Singapore government bonds, one of the world’s highest yielding AAA-rated government bonds. This means it’s notably credit-worthy and makes for a lower-risk investment that is resilient to adverse market conditions. Read more here.
2. Nikko AM Singapore STI ETF
By tracking our very own Straits Times Index (STI), the Nikko AM Singapore STI ETF replicates the performance of our top 30 companies. Read more here.
3. NikkoAM–StraitsTrading Asia ex Japan REIT ETF
The NikkoAM-StraitsTrading Asia ex Japan REIT ETF covers well-known Real Estate Investment Trusts (REITs) like CapitaLand, Mapletree and Suntec across several Asian countries such as Singapore, Hong Kong, Malaysia, China, and Indonesia. Read more here.
4. Nikko AM SGD Investment Grade Corporate Bond ETF
The Nikko AM SGD Investment Grade Corporate Bond ETF is one affordable way to invest in both Singaporean and foreign corporate bonds from investment grade issuers. It includes bonds from the likes of Temasek, DBS, UOB, and Standard Chartered*. Read more here.
*As of 30 June 2019.
Image credit: Nikko Asset Management
It’s easy to start investing with Nikko Asset Management – their ETFs aren’t a chore to purchase and affordable with lower fees*. It also provides instant diversification whether you’re investing in STI companies or certain geographical regions.
*As compared to unit trusts.
Since there are such simple ways for you to gain passive income – there’s plenty of time for you to pursue other things in life. With Nikko Asset Management, you can still earn money while juggling other important life goals.
This post was brought to you by Nikko Asset Management.
Photography by Pichan Cruz.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
The performance of the ETF’s price on the Singapore Stock Exchange (“SGX”) may be different from the net asset value per unit of the ETF. The ETF may also be delisted from the SGX. Transaction in units of the ETF will result in brokerage commissions. Listing of the units does not guarantee a liquid market for the units. Units of the ETF may be bought or sold throughout trading hours of the SGX through any brokerage account. Investors should note that the ETF differs from a typical unit trust and units may only be created or redeemed directly by a participating dealer in large creation or redemption units. Investors may only redeem the units with Nikko AM Asia under certain specified conditions.
This document is for information only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. You should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you. Investments in unit trusts or ETFs are not deposits in, obligations of, or guaranteed or insured by Nikko Asset Management Asia Limited (“Nikko AM Asia”).
Past performance or any prediction, projection or forecast is not indicative of future performance. The funds may use or invest in financial derivative instruments. The value of units and income from them may fall or rise. Investments in the funds are subject to investment risks, including the possible loss of principal amount invested. You should read the relevant prospectus and product highlights sheet obtainable from appointed distributors of Nikko AM Asia or our website (www.nikkoam.com.sg) before investing.