Building Passive Income - Layer by Layer

Almost all of us who are in our working years are working in a full-time job or generating income from other sources be it from a business or investment. 

One of the key to financial freedom is to allocate as much as possible your monthly income from an 'active' source whereby work is required to generate the income to a 'passive' source whereby income streams in regardless of whether work has been put in or not. I remember reading a book many years ago at Starbucks in Central Mall. I can't remember the title of the book but what I do remember is that it stated that there effectively are just 3 main passive sources one can derive their income from.

The first is via a business or royalties, the second is through property via rental income and the third is from dividends/coupon payments from investments. I decided some time back that I probably would not be venturing into a business anytime soon. As for property, I have neither the knowhow or appetite for leverage to partake aggresively in that. Investments particular into stocks was a natural choice for me.

Therefore I made up my mind around 1.5 years ago to allocate around 50% of my monthly income to stocks and to consistently build the portfolio over time. Through a slow and steady process, the percentage of 'passive income' versus 'active income' would grow. Using my current progress as a check, I currently have only 2% of my annual income made up of passive sources. There is a long way to go but it is indeed an extremely exciting journey, one which makes me excited to head to work everyday to generate the salary to build further amounts of passive income in future. I'll be 35 next year and I hope to be able to have a better scorecard by the end of next year, let's see!

How has your progress to build passive income been coming along? Do share with me!

Signing off

Transitioning Stock Investor

Core and Satellite Portfolios - Have you truly figured out your portfolios?

I'm sure many of you would have heard of having a core portfolio whereby you utilise that portfolio for your investments. And probably a satellite portfolio for alpha generation and the like. Having various portfolios help both manage risks and also set priorities.

How I have structured my assets is a little different yet similar all-in-one. I have 3 main asset portfolios: 1. Retirement, 2. Housing and 3. Cash

1. Retirement Portfolio
- This is my bare minimum portfolio and is something that will enable me to lead a fuss-free lifestyle when I retire. You can call it the survival portfolio. I can afford to probably lose my pants off from most of my investments and yet lead a frugal yet viable retirement. This portfolio obviously consists of lower risk investments and it includes both the CPF OA (portion that has been kept aside and not used for housing) & SA, SRS contributions (which are all invested in a IG bond fund) and potential cash values of all my insurance policies.
- The current overall value of this portfolio stands at a healthy five figure amount and I project to have at least $300,000 in this 'pot' when I hit my target retirement age. Of course the fact that CPF monies can only be withdrawn at certain ages, etc have been taken into account.
- So basically this is a portfolio that can't be messed around and all investments per se have to be of quality and of lower risk. It is a survival portfolio and is used both as a hedge and for pure retirement purposes.

2. Housing
- This portion is self-explanatory. However, I will be upgrading my place at the end of the year but buying a property that doesn't stretch my mortgage obligations. I believe in spreading my eggs and I'm not as versed or excited in property as perhaps I should be. So this is purely having a roof over my head and I aim to clear all obligations way before I embark on my full time investing journey.

3. Cash
- This is where I allow myself all the fun and freedom to pursue my true passion and expertise; which is investing in companies. What gives me added assurance and flexibility to invest is due to the fact that both of the above portfolios have been well taken care of. I then am not bound by fears of inadequate retirement planning or not having a roof over my head.
- The above being said, my focus is still mainly on being invested in quality businesses and having growing dividends that are compounded over time. Just staying the course and being disciplined and mature. Thus, I remain fervent fans of Singtel, Jardine, Raffles, Comfortdelgro, Sembcorp, OCBC, companies which to me present excellent opportunities to participate in their ongoing growth and businesses.
- The finishing line is really clear and it is when I have both retirement and housing portfolios pretty secured and the cash portfolio is generating an income that meets my monthly expenditures. This would also mean to me, truly transitioning to being a full-time investor. However, what probably separates the successful and the rest is planning, the stomach to tolerate volatility, lots and lots of discipline and perhaps most important just enjoying the process. I have indeed been enjoying absolutely every minute of it and I obtain loads of joy and satisfaction when writing my blogs and discussing with fellow investors over time.

Hope the small snippets of sharing above has helped paint a picture of how you might want to construct your overall portfolio. Remember; if you fail to plan, you plan to fail. Have a great work week ahead! *and back to my books.

Signing Off
Transitioning Stock Investor

Passive Income Stream - A Way of Life

This is I'm sure one of the main objectives of being a full time investor, to have a passive income stream to support your lifestyle.

Most of us folks have a day-job and I find it really important to have a focus when we are generating this income. As I grow older and more mature, it has become more apparent that one of the main reasons why I'm working other than enjoying what I am doing is to ensure that the income that I'm generating from work is re-channelled into passive income sources. These sources can be either one of these 3 or a combination of them: Business, Property, Investments. I'm currently pretty happy with my career in fund research so I plan to carry on with my day job. How I plan to enhance the goose (my job) is to further my studies. I have taken a pretty long hiatus with my CFA studies and I recently decided to resume the level 2 exam after a pretty long interval.

In terms of property, I currently am both not extremely versed nor excited by property investments. I probably will just stick to upgrading to a bigger place at the end of the year and that should be it. The smaller the mortgage, the more comfortable I will be.

This leaves me with my passion, my drive, which are stock investments. Nothing beats the thrill of seeing your portfolio doing well and growing over time. The feeling of anticipation as I reinvest the dividends declared by the companies and the constant deployment and redeployment of resources really brings me an extreme sense of satisfaction that is really hard to describe. This is more than increasing monetary resources, this is increasingly becoming a way of life for me. Remember, it is never too later or too small to start building your portfolio. It took me around a year to build my portfolio from nill to where it is today at c. S$72,000. My next aim is to hit $100,000 portfolio value and when that happens, some portfolio rebalancing might occur. But at the moment, am loving the way it looks and am looking forward to the dividend windfall of around $500 plus for the month of Aug.

Will do a short writeup and update on the dividends that will be received this month in due course. For the moment I sincerely hope this has inspired you to start or to carry on your great job of building passive income! Remember, enjoy what you do and the results will always surprise you

Signing Off for this weekend
Transitioning Stock Investor