How to generate $100/month or $1200/year of passive income? - Seedly
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Matthew Tan

Asked on 03 Mar 2020

How to generate $100/month or $1200/year of passive income?

How much capital is needed to start generating $100/month and which investment vehicle to do so? (Considering time horizon is 3 years and not from SSB)

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Hi Matthew,

A reasonable dividend yield is 4%. Hence, to generate $1200/yr you will be looking at $30K in capital. This can be done by investing $10K a year over 3 years.

You'll have access to a variety of instruments that can achieve this 4%, it could be REITs, equities or even Unit Trusts (actually, most will achieve more than 4% yield). They each have pros and cons so you will want to understand their chacteristics before you start (this part can be an essay, so I won't elaborate too much). Do note that Unit Trusts can pay dividends monthly, which no other instrument can.

Why 4%? Well, I prefer to be conservative. Dividend payouts can and have been cut before in bad times, so if you invest $30000 expecting 5% and get 4% in the end, it won't feel too painful.

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Matthew Tan
Matthew Tan

4w ago

Hi Elijah thank you for your constructive feedback! I have just gotten to know about investing and therefore have not delve into the world of picking individual stocks or reits. I am trying to find out what options I have out there which I can then possibly use further down the line. Currently, I am an incoming undergrad who does not have a huge amount to invest. I have only put a small sum of money into Syfe Reit+ and global portfolio. While doing a DCA into STI ETF.
Joe
Joe, Adventurer at Game of Life
Level 5. Genius
Answered 4w ago

A fast and relative easy way will be to DIY your own REITS portfolio, you can easily get 5% dividend on this. That will cost around $24,000 of capital. If you are lazy or not sure which reits to pick, can consider the REITS ETF to start with and adjust from there.

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Rais M
Rais M
Level 7. Grand Master
Answered on 03 Mar 2020

You can consider dividend investing. Assuming an average of 5% dividend returns per year. You will need around $24,000 to invest in dividend stocks.

But do not pick any stocks that simply pay dividends. Please do your own due diligence and analyze those the stocks to ensure that they are fundamentally strong and would continue to pay dividends in the long term. Some types of stocks to consider are blue chips and REITs.

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Rais M
Rais M

03 Mar 2020

Index ETFs works as well. Let's round down the 3.91% to 3.5% to be conservative. You might need around 35k to be able to achieve 1,200 per year. However, do note that what we are discussing here are very basic on how to achieve 1,200 per year. There are also many areas to consider as well. For example 1) When it comes to ETF, it is recommended to do dollar cost averaging rather than a lump sump payment to avoid situations where you buy it buy at a high price (but than again, you might be lucky and buy at a much cheaper price) 2) STI ETF pays dividend in January and July. If you are looking for monthly dividend income, this might not be what you want 3) STI ETF is not really suitable if you are also looking at capital gain. On 1 Aug 2015, 1 Oct 2018 and today - STI ETF is priced at $3. after almost 5 years. It actually looks like STI ETF did not perform at all. 4) Different ETF works differently and carry different risk.
Matthew Tan
Matthew Tan

03 Mar 2020

I did note that STI ETF pays dividends twice a year and that it did not grow much as compared to other index eg. S&P500 May I ask what will your investment stratergy be in regards to this question?