Creating Sustainable Wealth: Beating Inflation with Passive Income
The famous investor Warren Buffett once pointed out, “If you don’t find a way to make money while you sleep, you will work until you die.” This wisdom rings true today, particularly when you consider the pace of inflation and the ensuing economic challenges worldwide.
For instance, consider an everyday staple — a plate of chicken rice. A decade ago, this meal cost an average of $2 in many places around the world. Today, that same plate has surged by a significant 75% to a price of $3.50. In July 2022, core inflation in many regions, excluding housing and private transport costs, reached up to 4.8%, marking a rapid rise in a span of over 13 years. Such inflationary hikes are often driven by an increase in food, electricity, and gas prices.
When combined with the fact that real wage growth has been stifled by higher inflation, only clocking in at a mere 1.6% in 2021 — less than half of the 3.3% recorded in 2019 — it’s no surprise that many are seeking ways to generate additional, passive income to keep up with escalating consumer prices.
So, what exactly is passive income? Passive income refers to earnings garnered with little to no effort required for maintenance. This is in stark contrast to active income, earned from regular employment or task-oriented work. Passive income is primarily associated with investments, distinct from side hustles or active forms of investing.
Several reasons make passive income essential:
- It provides improved financial stability, a crucial factor in the current economic climate following the Covid-19 pandemic.
- It offers time freedom and flexibility, reducing reliance on a single income source and allowing more time for other personal finance optimization activities.
- It strengthens retirement goals by providing supplementary income that can hasten your journey to retirement.
Here are a few passive income options through investing:
- Pension Plans: Lifetime monthly payout schemes can provide a reliable source of income for older adults such as CPF Life or Aviva MyLifeIncome II.
- Robo advisors: These digital platforms require minimal human intervention and provide a wide variety of income-generating portfolio like StashAway and Endowus.
- Exchange-traded funds (ETFs) and Unit trusts: ETFs or index funds typically track a market index such as the S&P 500, while Unit trusts pool money from many investors to invest in various securities.
- Real estate investment trusts (REITs): REITs hold various real estate investments and property assets, and distribute at least 90% of their taxable income annually. Examples include the different listed REITs from Capitaland.
- Dividend stocks: Public companies often distribute a portion of their profits to shareholders via dividends. A simple example can be as simple as holding Apple stock.
- Private credit funds: These funds pool money from multiple investors to lend to private companies, often generating regular interest income. Examples include Bluejay Finance.
A sound passive investment strategy should consider capital appreciation, the ability to counteract inflation risk, and diversified income sources. Whether it’s investing in passive income sources or exploring private credit, due diligence, and planning are vital before making any investment decisions.
Earning passive income is achievable. There are numerous methods to reach this goal, and many platforms make the process easier with Income Portfolios and curated funds that payout dividends. With a robust investment process and continuous monitoring, you can invest better to live better.
Beat inflation, and start your passive income journey with Bluejay Finance today!
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Disclaimer: This is not financial or investment advice and should not be interpreted as such. Please do your own research on investments and financial decisions before partaking in any ideas or ventures depicted in this publication. Please note that historical rates of returns may not reflect future returns.
