Passive Income — Why It’s Important & Some Ways to Get Started

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Wouldn’t it be nice to have an ongoing revenue stream while you pursue your hobbies?

That’s where passive income comes in. As the name suggests, you are earning income without doing very much, other than the initial setup plus checking on it from time to time.

Whether your passive income amounts to $10,000 a month or even $200 per quarter, that’s still extra cash you’ve “earned” without actively working for it. For example, some passive income streams include rental income, dividends, affiliate marketing, royalty fees and so on.

This extra money can be saved up for a rainy day, used for a pampering session at the spa (go on, you deserve it), or further channeled into other investments (we’d recommend this — you can continue growing your money by creating another passive income stream).

While the ideal scenario might be to earn enough passive income that can fully cover your expenses, it’s better to stay realistic and start small.

Have yet to embark on this journey? Here’s why earning passive income is important, and we’ve also thrown in some ideas to help you dip your toes into the water:

 

 

1. You can get a “2nd payday”

We all look forward to payday. It’s that time of the month where our bank account looks healthy again, before we pay all of our bills. It’s also when we feel rewarded for the hard work we’ve put in for the past 30 days.

Having a passive income stream can create a “2nd payday”, or even a 3rd, 4th or 5th if you have more. These additional “paydays” supplement your existing active income from your job, generating more funds for you to do activities you love, or for you to set aside for retirement or other financial goals.

What about my side hustle?

Compare this to taking up a side hustle to generate this additional income. Those additional hours spent each week can be put to better use — but then again, if you really enjoy your side hustle, the passive income stream is like a bonus!

Consider getting a solid investment that can generate dividends. These are typically paid out periodically. For example, OCBC’s Blue Chip Investment Plan (BCIP) provides investors with access to dividend-yielding stocks like high quality Singapore-listed stocks and exchange traded funds (think Singapore stocks like OCBC, UOB and DBS). 

Keep it growing without actively doing so

In addition, OCBC’s BCIP is a monthly plan, which means once you set it up, it will keep on investing and growing your moolah. You can start from as low as S$100/month — which is really flexible, especially if you’re managing cashflow.

What’s interesting is that OCBC’s BCIP uses the concept of dollar cost averaging, which can potentially help you lower your average cost, spreads out risk and can take the guesswork out of when to invest.

You’re also able to change your BCIP counter selection or investment amount, and sell units easily through OCBC’s Mobile Banking app or Online Banking. There’s also no lock-in period, and you can withdraw your investments according to your needs.

 

2. You are able to diversify your income streams

Why is diversifying your income streams so important? Let’s look at it this way — say if your only income stream is your full-time job, you could be walking a tightrope as retrenchments are at an all-time high right now.

However, if you have other revenue streams (i.e. investments and other passive income), you’re hedging against this possibility. If one income stream is cut off, there’ll be others to cushion the impact. Hmm, kinda like you hanging on by 1 rope, or having 3 or more ropes to support you.

Even among your passive income streams, the same diversification principle applies. Some market movements may be unexpected, so you might want to buy a variety of products in different areas (i.e. medical stocks vs airline shares).

Diversification done for you

For OCBC’s Unit Trusts, experienced fund managers are able to help investors like yourself diversify their portfolios and manage the investments across different market environments. You can choose unit trusts that offer income regular income distributions, although you’d be better served reinvesting your dividends if you do not need it. You’ll also be able to access top fund ideas backed by OCBC’s investment experts that are selected only after rigorous reviews, and it’s all done via OCBC Digital Banking.

You can choose to invest from $100 per month (using dollar-cost averaging, so it’s automatically regular yet passive) or via lump sum investment (I usually deposit my year-end bonus or extra money that I’ve saved up this way).

 

 

3. You can grow your money without working so hard

Every day, we exchange time for something. For those of us who work full-time jobs, we dedicate 8 hours of time every day in exchange for our monthly salary. Sometimes, in order to support our family, we take on a side hustle — again, exchanging even more time for money.

It’s the same reason why sometimes we’d prefer to take a cab instead of a slow bus. Because we’d rather spend the money to have more time.

Once you’ve gotten your passive income stream going, this frees up the time you’d normally spend earning this additional money. You’ll have more time to do the things you enjoy, such as hang out on weekends with friends and family / read an enriching book, instead of driving Grab or going out for sales meetings.

Wait, what… robots?

Investing has become much easier in recent years, with self-service artificial intelligence and algorithms supporting traditional financial advisories. Gone are the days of making a compulsory in-person appointment with a financial advisor, talking for an hour and filling up tedious paperwork.

These days, robo-advisors such as OCBC’s RoboInvest are commonplace. This investment route not only offers lower fees than that of a traditional financial advisor, but it’s literally available 24/7 via OCBC Digital Banking (banking on the go, yay!) and you can set it up yourself without the need to meet or speak to a financial advisor (you still can if you want to).

OCBC RoboInvest has a mix of portfolios that offer capital gains and are dividend-yielding (more of the former). It has a wide range of 33 portfolios across 6 markets, with a range of risk appetites to suit your personality. You can start with just US$100, without the need to open a securities or custodian account.

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Annual Management Fees
0.88%
Minimum Deposit
US$100
Platform Fees
S$0

 

You’re passive, but it’s active

But while it’s passive on your end, RoboInvest portfolios are actively managed by a mix of algorithms and human fund managers. Together, they help identify regular portfolio rebalancing opportunities to help maximise your returns based on market conditions. It’ll also appear on your OCBC Digital Banking dashboard for at-a-glance monitoring when you login to do your day-to-day banking stuff.

You can also top up and withdraw your investments easily using your OCBC deposit account at any time without fees and charges.

 

 

4. You are in a better position financially

Okay, say you’ve already set up some passive income streams. There’s some money flowing in — extra cash — in addition to your full-time job and sometimes side hustle of ferrying passengers around. Although it’s mostly passive on your part, you still make sure to check on these investments once a week (like tending to a plant) and continue growing them.

With this additional revenue, you can:

  • Alleviate the financial uncertainty of both the present (i.e. paying your bills) and the future (i.e. hedging against inflation, the possibility of another crisis like Covid-19 or recession in the far future, preparing for retirement)
  • Realise your financial goals earlier (i.e. travelling around the world, financial freedom and early retirement, having enough money to send your children to a good university)

And we all know that the more money you grow, the larger the amount of received passive income — that’s why the rich can get richer.

 

 

But before you begin, make sure you know the risks

While powerful, investing to generate passive income streams is serious business. Always make sure you read through the product you’re buying into and that it matches your financial goals, suits your risk appetite and you’re clear about all of the associated risks, no matter how small.

Make sure you’re only investing what you can afford to lose — because there’s always a risk as investments typically follow market movements (and that may be unpredictable, especially during these uncertain times).

Do also know that not all investments were created equal. Some have greater risks (with higher returns), while others are slow yet much more stable. Certain products are tailor-made to be higher risk than others, so don’t dabble in them until you are sure or if you’re positive you can stomach the risk.

Be clear about the associated fees and charges too, as sometimes it can eat into your earnings. If you’re in any way unclear, do make sure to check in with OCBC before investing. 

Ready to begin? OCBC has a comprehensive Investments page to springboard your passive income journey.

 

 

All figures provided are for illustration purposes only. Actual figures may vary or differ depending on the actual circumstances. This is for general information and does not take into account your particular investment and protection aims, financial situation or needs. You should seek advice from a financial adviser before committing to a purchase. Otherwise, you should consider the suitability of the product. Investments are subject to investment risks, including the possible loss of the principal amount invested.

This advertisement has not been reviewed by the Monetary Authority of Singapore.