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Working Adults’ Ultimate Guide To Growing Your Passive Income

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Financial freedom is a dream that many of us dream to achieve. It is easy to fall into the misperception that financial freedom can be achieved as long as you work hard enough. Unfortunately, it doesn’t work like that. In order to achieve financial freedom, you cannot just rely on living on your paycheck. You need to start building your own passive income to grow your wealth so that you have dual sources of income. When you finally decide to take a break from work, your passive income can still sustain your living expenses.

If you really want to grow your wealth and achieve financial freedom, here are four methods that you can use, depending on your personal risk appetite.

Related: How To Become A Better Investor With Ray Dalio’s 5 Investing Principles

1. The fuss-free and risk-free method: Singapore Savings Bond

“Growing your wealth needs to be done through high-risk investments. Otherwise, you can’t.” Well, that is a myth, at least for Singaporeans. This is because Singaporeans have access to a special type of investment known as the Singapore Savings Bond.

The Singapore Savings Bond (SSB) is a type of Singapore Government Securities that retail investors can invest in. SSB was designed with retail investors in mind so that you can invest your money with one of the safest institutions in the world, i.e. our Singapore government. SSB is a principal-guaranteed investment that is backed by the AAA credit rating of our Singapore government.

When you invest in SSB, you will receive coupon payments from the government periodically. This happens every six months as long as you are still holding on to an SSB. While SSB is a bond-like investment, it holds some interesting features that aren’t usually associated with bonds. For example, bond investments usually require a sizeable capital. However, you can start investing in SSB with as low as S$500. In addition, you can withdraw your investment in SSB at any time without any loss, even if you don’t hold it till maturity.

Read also: How to Buy Your First Singapore Savings Bonds in 4 Easy Steps

2. The don’t-lose-sleep-over-it method: Index investing

Index investing is Warren Buffett’s recommended way of growing your wealth. According to Warren Buffett, index investing is the most consistent way of growing your wealth in the long run. It is also the cheapest and easiest way to own a basket of stocks.

Since it is almost impossible for you to find winners all the time, the best way of growing your wealth is to invest in every good company you know. It is like buying all 10,000 combinations for 4D. There is bound to be one that will strike in the upcoming draw. That is exactly what index investing does for you.

Index investing allows you to own a small piece of every company that is part of the index. For example, by investing in the Straits Times Index (STI) via an STI ETF, you are the proud owner of all 30 blue chips at once. Since you are investing in a basket of stocks, you don’t have to worry about the performance of individual stocks. Investing in an index will allow you to sleep well at night without worrying about the performance of your stock picks. Overall, the basket of stocks is expected to give decent returns in the long run as the economy grows.

Related: Best Low-Cost Index Funds For Singaporeans To Invest Their Money

3. The do-it-yourself method: Blue chips investing

Maybe index investing and SSBs aren’t your kind of investment. You prefer an investment that grows your wealth at a faster pace with a greater degree of autonomy on what goes inside your portfolio. If that is what you are looking for, then you should opt for this do-it-yourself method.

Instead of choosing from a basket of pre-determined stock picks, you get to choose which blue chips go into your portfolio. You can choose to build your portfolio with a specific focus in mind, such as aiming for a faster rate of growth for your capital. For example, if you think that the technology sector will outperform in the next five years, you can invest in more technology blue chips. You can also choose to go defensive if you foresee market uncertainty.

If blue-chip investing is done right, you can outperform the performance of indices. However, the only caveat is that blue-chip investing requires a certain level of skill, effort, and time for you to do your own due diligence.

Read also: Regular Savings Plan: Who Says Saving Has To Be In Your Savings Account?

4. The leave-it-to-the-expert method: Robo advisory

What if you want to invest like a pro but do not have the relevant skills nor the required time and effort? Fret not, because robo advisory would be able to help.

Robo advisors are digital platforms that help you to make financial decisions using algorithms and artificial intelligence. They help you to decide which type of stocks to invest in, how much to invest in and when to sell them. It is almost like hiring an expert to manage your investment portfolio for you, at a fraction of the cost of hiring one.

Some robo advisors even apply the knowledge and wisdom of Nobel prize winners by implementing Nobel prize-winning algorithms when managing your portfolio. With robo advisory, you can invest like a professional stock investor without the skills nor effort.

Related: Robo-Advising 101: What Is It, Why Use It, Who It’s for, How to Start

The post [Infographic] 6 Things to Learn About Money from Warren Buffett appeared first on algo investing.

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