How to Build a Passive Income Strategy

01 March 2023
Philipp Muedder
Head of Partnerships

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Find out how you can create passive income in order to work less, earn more, and get closer to financial freedom. 

“I want to make more money.”

“I wish I didn’t have to work so much.”

Most of us have likely said one of these sentences before, or at least heard variations of them. The common thread there is financial freedom: having the option to work part-time or maybe even not at all.

If you’re looking to work less, earn more, and get on the fast track towards financial freedom, having a passive income strategy could be one way to get there.

What’s passive income, and why is it important?

Passive income is money that’s generated while you sleep, travel, or spend your time doing anything else. Building passive income streams could help you reach your long-term financial goals faster, or even pad up your emergency fund. Just picture it – even $100 USD a month could mean more money for your:

  • Coffee
  • Bills
  • Shopping
  • Meals, and more!

Ways to generate passive income

There are plenty of ways to generate passive income, ranging from investing to starting your own side hustle. Depending on how much capital and time you put in upfront, you can have a little extra income each month, or you can generate enough passive income to sustain your lifestyle without having to work a traditional day job at all.

Here are some ideas to get you started on your passive income strategy.

Own dividend-yielding stocks

In dividend investing, you buy a stock that will pay a regular dividend on a yearly, semi-annual, or quarterly basis. Companies pay out dividends per share of stock, so the more stocks you own, the higher your payout.

Since all you have to do to receive these dividends is to own the stock, dividend investing is one of the most passive ways of earning income. But the tricky part is choosing the right stock to own. A company that offers a high dividend yield may not be able to sustain it for the long term. And, companies can also decide to cut dividends in the face of challenging economic or business conditions.

In short, if you invest in single stocks to earn income, you can face stock price volatility and dividend yield changes that you wouldn’t experience with a bond. So, when investing in single dividend-yielding stocks, be sure to prepare yourself for potential large price swings and capital losses.

Create an passive income portfolio 

If you don’t want to spend time evaluating companies, you can buy into an income portfolio that is professionally designed to generate income on a regular basis. Investing into a diversified portfolio reduces the risk of a single stock or bond jeopardizing your investment returns.

Within our Flexible Portfolios, you can invest in a passive income portfolio or pre-built with income-generating assets that you can adjust and change any time. In a nutshell:

✔️ It features a 99% exposure to a variety of bond assets, including global, corporate, high-yield, and long-duration bonds.

✔️ It’s constructed to withstand changing economic environments over the long term to continuously deliver attractive yields.

✔️ There’s no minimum investment amount and no lock-ins

Invest in real estate

Some people invest in real estate to rent it out and earn income from their tenants. However, this requires a significant amount of upfront capital. Want to invest in real estate but don’t want to own or manage physical properties? You can buy into REITs, which are pooled funds that own commercial real estate such as shopping malls, hotels, or office spaces. REITs aim to grow the value of their property investments while simultaneously producing dividend income for their investors.

Put your spare cash into fixed deposits or cash management portfolios 

As inflation continues to rise, it’s important to make sure your cash is working for you. That’s because any funds you leave in low-interest savings accounts effectively lose value over time. The good news is there are now multiple low-risk options to earn a return on your cash, including fixed deposits, government bonds, T-Bills, and cash management accounts.

With our USD Cash Yield portfolio, your money will fit the bill with exposure to short-dated US government bonds with remaining maturities between 0 – 3 months. In a nutshell:

✔️No lock-in period

There are no restrictions on withdrawals and transfers.

✔️No minimum investment amount

Start investing with $5, $500, $50,000 HKD or more - it’s up to you!

✔️No cap on the balance that can earn returns

Earn the full rate on any amount.

✔️It’s ultra-low risk

US treasury bonds are backed by the US government.

✔️Helps protect against inflation

Yields are correlated to rising interest rates.

Start a side hustle 

Apart from investing for passive income, you can also start a side hustle. This involves offering a service or creating content that generates revenues or royalties. Some ideas include writing a book, creating a blog or podcast, crafting an online course, or selling on an e-commerce store. This strategy requires time, persistence, and sometimes luck – so it helps if your side hustle is something you’re passionate about!

Diversify your income streams

Just as your investment portfolio should be diversified across asset classes, so should your ways of generating income. Setting up multiple income streams not only allows you to buy or save more, but it can also serve as a good Plan B if your normal income stream gets disrupted by medical reasons or job loss, for example.

There are plenty more ways to diversify your income stream and put your money to work. Ultimately, your passive income strategy should reflect your personal preferences and priorities. Do some research, and ask around to discover how you can make passive income and live with more financial freedom and financial security.

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