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Wednesday, 14 October 2015

The Allure And Alternative Path To Passive Income - Part 2 of 2


I guess some of you have figured out for yourselves what's the alternative path for adopting a passive income strategy really is. Wink.

I wanted to say "most of you", but who am I kidding? 


Coming down the mountain

Yup, your favourite shepherds who have already reached their X amounts by Y years, and where working full time is just an option, they didn't start with a passive income strategy from day 1, did they?

That comes much later. 

Their passive income strategy only starts when they were coming down the mountain.


Climbing up the mountain

So what were the common strategies they have used to reach the mountain top?

Let me list the 2 most frequent ones:


1) Earn more; save more (preferably earn more)

Let's face the facts. It's better to earn $10K and save 20% than to earn $3K and save 50%. 

It does not matter whether you work for someone or is self-employed, if you belong to the higher income brackets, you already have a head-start in earning and saving your first pot of gold!

And that's without any investments needed! How cool is that?


2) Make money from property

If you go round asking your uncles, older cousins, parents, etc; you'll find more of them made money from properties than from equities.

You may be nodding in agreement as that's where your first few hundred thousands came from... You know, the 2 bites of the cherry, upgrade, downgrade... 1st rental/investment property, 2nd rental/investment property... 

The real booster is the 5:1 leverage used. You know it; I know it.


Harder but possible

OK, the next 2 strategies are adopted by many; but few manage to pull if off successfully:


3) Speculation with leverage

Look, if I earn a below median salary, don't have much capital to speak of, how else to acquire my first pot of gold before 55? 

You think why some of us desperately want to withdraw our CPF money at 55? That may be our only opportunity to see something more than $100K in our hands... 

We are dealing with emotions and sentiments here... So please keep your holier than thou financial literacy supremacy to yourself. If you don't mind!

That's where the seduction of derivatives like Options, Futures, CFDs, Spot Forex, etc; and Penny Stocks trading come into the picture.

It's like Toto. Put in little; hope to win big big!

And just like Toto, the majority lose money so the few can win :(

You know the author of the very successful Market Wizards series? Whenever Jack D. Schwager makes money in his futures account over a certain limit, he'll transfer the excess funds into boring US Treasuries - passive income from trading?


4) Business Ownership

You know something funny? Many draw their inspirations from embarking on a passive income strategy from Rich Dad Poor Dad, yet the whole essence of the book is about the benefits of having our own businesses!

Talk about poor reading skills...

Of course the failure rate is high; but so are the rewards!

Is this why financial businesses are so eager to sell us their financial products and services to "help" us to reach our financial goals?  

And why some business owners have so much passion to educate us on financial literacy?

I still can't erase the funny sight of that young Sikh trainer who let slip he made his first million through his Trading Academy... Hello!

You don't find many business owners as financial bloggers. But they do appear in some investing forums. 

If you're observant, you'll find their passive incomes are not restricted to dividends from stocks - they include fixed incomes from bonds and rentals from physical properties. 

Now that's diversification!

If you have several taps of passive incomes (stolen with pride from the fisherman), if one pipe gets choked, the other taps are still flowing!


Alternative path?

Some of you reading here may be reflecting it's not so alternative after all...

Well, that's for you to decide for yourselves.

Whether it's better to EARN our first pot of gold first, then SECURE our passive income flows. (Note: its plural flows)

Or to start with a single gold coin and hope the passive income from this single gold coin will help us turn it into a pot of gold.





33 comments:

  1. Hmmm. Just like doing pull-ups. From 0 to 1 is the hardest - took me like weeks! But, after that, the 2nd and 3rd were way easier. I guess the 2nd pot of gold is easier to secure than the first too.

    Part 2 was worth the wait, indeed!

    ReplyDelete
    Replies
    1. Kevin,

      If you look at listed companies like Breadtalk, OSIM, Old Chang Kee, etc; the initial years pre-IPO were the hardest.

      But upon listing, exponential growths start to kick in...

      As a business owner, why would I want to dilute my holdings and share the future profits with stranger freeloaders?

      I guess 5% yield on a $100 million public company is better than 5% yield on a $10 million private company ;)

      Delete
  2. SMOL,

    Actually no. 1 caN give u FI without investment.

    Seriously, if u consider the scourge of inflation and the Devils of market, seriously those who say they invest to beat inflation are kidding themselves.

    We invest partly also to "beat" inflation, beat market, beat benchmark and also beat that millionaire blogger down that street

    If cannot beat them, then I go for "happiness index"... That I beat myself

    Sobz... Sob

    ReplyDelete
    Replies
    1. Sillyinvestor,

      You think why so many top students and parents aspire to Law and Medicine?

      It's quite visible after graduating and working a few years, most lawyers and doctors are millionaires - provided they don't overdo the wine, women, and song bit.


      Why I like to verify whether one is investing to achieve or to escape?

      Being happy and doing something we like is different from assuming if we reach X amounts by Y years - then we'll be happy.

      Delete
  3. Coming down the mountain - Absolutely true!

    I seriously started in the stock market with past 23 years of hard earned saving (cash + CPFIS)

    Read? Your Investment Portfolio is your Accelerator on the Road to Financial Independence! (4)

    Dividend income strategy will depend on our account size. Larger one will find it so much easier.

    How many bloggers are telling?

    Work harder at our human asset and then make our money works harder when we are about to go down the mountain.

    ReplyDelete
    Replies
    1. CW,

      Most only see the glamour of the singer performing his 10 minutes of fame on stage; his 10 years of blood, sweat, and toil backstage few bother to ask...

      Silly rabbit!

      Just sign up for that "I'll make you an instant singer" course and all is well!

      People are funny.

      If someone "snake-oil" to us they can help make us into instant Millionaire Lawyers and Doctors in a few seminars, we stay the hell clear...

      But if it's instant Millionaire Investor or Trader, we believe!?

      Delete
  4. Haha smol...true. for investments frankly i began to see clear results only after 3-5yr. Before that, i doubt myself almost everyday whether this is really a correct thing to do.
    Now the doubt is much less, as i see passives coming in.
    In short, no such thing as short cut to success.

    ReplyDelete
    Replies
    1. Mr ang gong gong,

      Your acknowledgement carries a lot of weight.

      You being the champion of a dividend income strategy to ride out the cantankerous mood swings of our mistress called the Market ;)

      Delete
  5. Haha! Penguin becomes ang kong kong. What cute names! LOL.
    On a serious note, the key..and i say again, the key is to keep on buying at regular intervals using a portfolio which excretes this funds at this regular intervals with the definitive result of increasing cashflow. Portfolio ups n downs...dun even look at it.
    Over long time portfolio will play catching game with dividend growth.

    ReplyDelete
    Replies
    1. This mth i am getting $2*k dividends. Where's it going? Tour? Nope. Back to the portfolio.

      Delete
    2. Well,

      I like to use the singular "I".

      Some prefer to use the plural "We". (They probably think they are royalty)

      You use "Her" in your Google+ profile ;)

      Hey! Whatever makes you happy!


      Your strategy works for you as you prepared for a long, Long, LONG journey....

      And you don't mind boring ;)


      Delete
  6. Hi SMOL,

    Very insightful post. "Coming down from the mountain" How True! Most people start their portfolio with hard earn money from active employment. Passive income can only become sustainable when the portfolio attain a certain size. Most miss the starting part of the stories.

    That reminds me of a story: 一个小伙子请教成功的商人成功的秘诀。商人说:“我年轻的时候,有一天爸爸给了我四个苹果,我把它们分别卖给4个同学,用所赚的钱买了8个苹果。。。”
    小伙子点头道:“安哥,我好像有点懂了。。。”
    “你懂?你懂个屁!后来我继承了我老爸全部的遗产。”
    “。。。。”

    ReplyDelete
    Replies
    1. 三页大哥,

      不好意思,骗吃骗喝而以。

      能够少奋斗十年谁不想要?

      用老爸的钱是上上策!

      Delete
  7. Is going up the mountain easier then coming down?
    Some people think going up is very difficult but coming down is much worse.
    If you trip now, you may not have a complete body to start all over to go up the mountain again.

    ReplyDelete
    Replies
    1. temperament,

      It's not so much which is "easier" or more "difficult".

      It may have to do more with selecting the "more fitting" strategies for each different stages of our life cycle.

      Some chose a very conservative strategy during their younger days. In their 60s, seemingly wanting to make up for lost time, start discovering their animal spirits and experimenting with all sorts of high risk "business ventures" or "old cow eat soft grass" behaviours...

      I have an ex-colleague who was quite pissed with her dad... 70 plus, with landed property, grown-up children with their own families, itchy itchy have to fool around with mistress... Ended in divorce...


      That's the drawback with too extreme delayed gratification... Everything pushed back and forever living in the future; always saying when I have X, then I'll do Y...

      When young, be all the "hero" and as "havoc" as we want; get it out of our systems.

      Don't wait till time is running out and we panic... Then we'll see all sort of "lao hero" behaviours...


      Wait. Maybe that's a good idea? When I'm 80 I'll marry a 18 year old mei-mei?

      LOL!

      Delete
  8. Hi smol if ur wife still ard, dun do foolish things lest u want your fortune to halve...lol

    ReplyDelete
    Replies
    1. Friend,

      If I'm 80, how many more years do I have?

      Since cannot bring along with me, I better spend it all before I go...

      Getting the timing "right" is the hard part though :(

      Delete
  9. 80 years old how to fool around? Got stamina meh?

    ReplyDelete
    Replies
    1. You spoil sport!

      Let a man have his fantasies!

      Delete
  10. Haha...i forgot...tongkat ali n the v drug
    Lol...

    ReplyDelete
    Replies
    1. And the young wife throws her hands up in the air in despair, "Now he won't leave me alone!"

      Delete
  11. I am still climbing up the mountain...saw many corpses along the way.
    At every stage, I always asked everyone whom i met coming down the mountain.. "Is the peak near?" They just nod their head and continue down the mountain.
    I am so tired...e ant looking at the grasshopper.

    ReplyDelete
    Replies
    1. WolfT

      The mountain is allegory.

      We can always change the metaphor to one that suits us better ;)

      Tired?

      There's another imagery I like a lot if mountains are not your thing.

      Imagine our lives' starting point to be the snow-capped mountain tops.

      As the snow melts, it forms little brooks we can step over; then into creeks we can jump over; blend into streams we can wade across; and finally merging into rivers we can swim across...

      No, the journey does not end in the warm embrace of the oceans.

      That's just a comfortable temporary holding area.

      For those droplets of water who can let it go, they'll float into the skies.

      And be the carefree clouds ;)

      There!

      This river allegory is "less taxing" since it's about "going with the flow". The "hard" part though is the "letting go" bit...


      As you may have discovered, ants prefer the mountain story, while grasshoppers would prefer the river story ;)

      You? You're Wolf!

      You come up with your own Wolf stories!

      Wearing other people's shoes is indeed tiring...


      Delete
  12. Ha! Ha!
    Who can imagine (says it better) better then former "snake-oil" saleman?
    Err... i mean former "IKEA SUPER SALEMAN".
    Take as compliment please if not don't slap so hard leh!

    ReplyDelete
    Replies
    1. temperament,

      I sure can sing better than I talk ;)

      I'm so full of it sometimes! (For those who don't speak American, it meant I full of shit)

      Do they still have volunteers tell stories to children at our public libraries?

      I wonder whether they will take me seriously if I volunteer to tell stories to adults?

      LOL!

      Delete
  13. Hi SMOL,

    They have !! My son is listening to stories ..

    U modest la, u already telling stories during seminar ... To adults.

    ReplyDelete
    Replies
    1. Sillyinvestor,

      I think it would be nice to tell stories in the open nights like in the old days.

      Once a joss-stick has burned out, I'll go round collecting tips!

      Delete
  14. Hi smol
    U sound like u in ur 60s.
    How nostalgic tt statement
    Lol
    Penguin

    ReplyDelete
    Replies
    1. Penguin,

      I think not only me, quite a lot of Singaporeans who grew up in the 60s-70s enjoy nostalgia - hence i got 2 nostalgia blogs on the right ;)

      Remember reading comics at the barber shop or listened to stories on Redifusson?

      Cantonese got their Lee Dai Sor; Hokkien got Ong Toh; and Teochew got Ng Yong Kern :)

      I see the ladies are starting to wear 70s fashion back again. Let's see whether bell-bottoms will back a come-back for us men!

      And of course, Star Wars is back!!!

      Delete
  15. Hi Jared,

    I miss this well written part two while enjoying my trip up and down the mountain in Taipei. Sometimes some profession says "up the shore!" instead of down mountain?

    Very true. How about one more alternative. Papa mama money... hehe.. sensitive topics!

    Indeed I totally agree with what u say here, which applies to me.

    1) 2) and 4) applies to me exactly.

    1) I received my first pot of gold thru lots of luck, such as right timing n exposure, meet right pple n be in right job, say right thing at the right time. And possibly some hardwork, little bit more thinking. Be very focus and stay rationally patient helps too!

    2) My most impt investments did come from properties, like what u mentioned. To date, it's still the one that gives me the most passive income.

    And in fact I did know so many pple around me that truly get sizeable investments returns via properties. Some of the clever prop investors did not necessarily over-leveraged like some pple in the financial blogosphere may think. Property investment required good knowledge too!

    Then come stocks for me! Still a very good way of increasing income, but like what u and many wise man say, the portfolio size counts!

    And it takes time, just like 1)!

    From the day u truly get serious in stocks, I reckon at least 1 stock cycle of continuously learning n failing, then u can savor the real fruits!

    3) I am never lucky. so out for me.

    4) Guess this is my ultimate aim when time is riped! Build what that is truly yours! Learning more about businesses is a important pre-requisite, which thru working and learning investments also help.

    I remember I once "fairy tale" storytold that I want to be a business owner or CEO of my what is truly mine. I was mocked by the more intelligent "financial savy" generation, that they will just shake leg and become shareholders and see their share go up and collect dividends, while laughing at how I suffers with the stress of being a CEO.

    I smile.... :-)

    ReplyDelete
    Replies
    1. Rolf,

      You didn't miss anything. Markets not going anywhere, and I still talking "male chicken" to shoot the breeze!

      Daddy mommy money and marry rich I did left them out hor?

      We can't choose our parents but I do know some will "chose" their god parents. Must have super "carry bola" skills!

      And I guess in your business circles you have come across spouses that have married well. They are the true Men and Ladies of Leisure!


      I know what you mean when being mocked by sheep. Ironically, these are the same people who are investing to escape and still struggling up the mountain...

      I can understand if they are majority shareholders class; but as minority shareholders??? They really think the CEOs of listed companies are working for minority shareholders?

      Can minority retail shareholders of Stan Chart tell the Chairman to find a new CEO to turn around the bank or we find a new Chairman?

      I smile too when sheep tries to tell shepherds and landowners what to do.

      I do parody and satire; but I only poke and kick those who are stronger and better off than me. I don't go to those who are struggling in life and tell this to their face: "If you born poor it's not your fault; but if you die poor its your fault."

      This statement in skilled cheerleader hands can be motivating. But in the hands of parrots, you'll just piss people off!

      And they wonder why no one listens to them when they meant well?

      If only they knew they have to earn the right to use that statement...

      Delete
  16. "If you born poor it's not your fault; but if you die poor its your fault."
    Don't think so!
    "If you die poor it's still not your fault; Unless you have not given your best shot"

    ReplyDelete
    Replies
    1. temperament,

      I do like the Buddhist way of not causing "suffering" to others - 不让人起烦脑。

      Sometimes casual speech can do a lot of harm and hurt.

      Delete

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