Tuesday, 1 December 2015

My Passive Income History

Passive income is the IN thing now. It is an income stream in which one does not need to be present in order to obtain it. This can be dividends from stocks, rental income, interest income from deposits, money from a business (where you do not need to be there literally to earn the money), and so on.

We all have some passive income, in some ways or another. Being a typical Singaporean, working on a job to earn a living, and without any property and any business that generates passive income, my passive income is relatively low. In fact, if you look at it, all these come from interest earned. As I looked back, I realized that I have been working on increasing this interest income stream, though still at a low amount to date.

My first few dollars...

I first received interest income from, banks. I remembered when I was 18, when my parents gave me the POSB bank book that they had saved money into, under my name.I updated it regularly, and always, at the end of the year, tracked the amount of interest received at the end of the year. 

After I graduated from Junior College, and started doing some part- time work, I, too opened an OCBC savings account (because of the shorter ATM queues). I like this account better, as I receive interest on a monthly basis, instead of yearly.

Throughout my University life, when I was giving tuition, the money earned went to my savings account, which generate a zero point something percent interest. That generated my passive income of a few dollars a year.

From a few dollars to hundred of dollars a year...

When I started working, I saved my bonuses. But the bonuses only generate a few cents of interest per year. This was when I chanced across bank fixed deposits promotions. There is a UOB branch next to the MRT station I usually board the train, and this branch always have the LCD screen showing all the promotions it has. A 1.08% interest rate for a 13 month fixed deposit caught my attention one day, and I put my savings into it. From a few dollars per year, suddenly, I have about $200 in interest income (in my first attempt, I put in about $20,000). 

From then onwards, once I have saved enough, I will make use of the fixed deposit promotions and put more money into it. I started to earn about a few hundred of dollars per year from fixed deposit interest. 

An increment from a few dollars (from saving accounts) to a few hundred dollars (for fixed deposit). 

From hundred of dollars to the thousand dollars a year...

In 2011, when I was 27, I opened a brokerage account with POEMS, and started my CDP account, after my colleagues were telling me that you can just open without paying any transaction fees. Free! Open it just in case you want to buy bonds/ shares, etc. anytime you want.

My partner, who has the habit of setting yearly goals, also made setting up an online brokerage account and CDP account one of my goals. It was simple to complete, and it was one of the first goals I met in that year. It was simple, I remembered going to the POEMS branch with a bank book and my IC, and filled in all the forms the personnel requested me to. After a week (I guess), I got my accounts and all other details.

In January 2012, Capitamalls Asia had an offer for retail bonds, that offers an interest rate of 3.8% per annum for year 1 to 5 and 4.5% per annum for year 6 to 10, if bonds are not redeemed. In fact, it was my partner who told me about it. CapitalmallAsia is a reputable company, and without thinking much or doing much research, I ventured into it. Well, it was earning 3 times more interest than my fixed deposit. I bid was allocated a proportion of what I bid. This was the start of my first passive income from bond interest. A good jump in interest income.

In February 2014, Capitamall Trust (CMT) launched a 7 year bond, with an interest of 3.08%. I too signed up for it, and was allocated some units.

This year in May, Frasers Centrepoint offered a 7- year, 3.65% retail bonds. I signed up for it. Honestly, I was expecting the bonds to be over- subscribed by a lot, like the previous 2 that I had bought. However, I got almost the same number of units as what I bid!

More retail bonds are issued this year, like Oxley, Perreniel and Aspial. It makes me wonder why. Is it because companies see borrow money from the public easier compared to banks, or they are expecting interests rate to increase and bond offerings offer fixed interest rate? Both these reasons are not in the favor of retail investors. The former being if banks do not really want to lend them, then it spells trouble, and the latter being if I wait longer, I can get higher interests elsewhere. In addition, I do not know these companies much, so I stayed away from them.

Another reason why I stayed away from more retail bonds was that I feel that I am overly vested in retail bonds. In particular, I have more than 50% of my assets in RETAIL REITS bonds. Putting all money in the same pot is not a good idea in terms of risk.

What's Next?

Banks are offering higher interest rate for bank deposits provided that some conditions are met (e.g. minimum spend, etc.). I have talked about my OCBC 360 account as the main deposit account that I earn about 2.2% interest on. There are also other high interest accounts such as the UOB One Account and Standard Chartered Bonus Saver Account. I am only venturing into one, as all have a minimum spend requirements, which I don't think I can meet (which is a good thing).

Also, I have been allocated the Singapore Savings Bonds. I am thinking of getting more once I have saved sufficiently, and if the interest rate is good, let's see.

Despite the increase in interest income over the years, there is still a lot I need to do, in order to meet my retirement goals of passive income.

The next milestone will be the first $10,000 of passive income per year. Hopefully, to be achieved within the next few years.

End Note

I am working very slowly towards my passive income goal, and with each little step I take, it seems that I am making some progress. Though I am not sure what is installed in future, but it is these tiny steps that make us grow, and progress.

I may also get into other passive incomes in future, but these would require some research, homework, and guts.

Let's see.

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