Asked on 02 May 2019
P2P Versus Real estate
Hello, I’m Cassandra, the Community Engagement Manager for CoAssets Pte Ltd (CoAssets).
While there is no one “best form” of passive investment, I personally define “best” as the highest level of risk an individual is able to tolerate. As every individual risk tolerance differs, it would be dependent on the following factors: Interest rates, default rates, effort required and simplicity of the investment.
Since CoAssets provides a P2P platform, I could help by giving a brief overview of how P2P platforms work.
Firstly, P2P platforms main focus is to match investors (lenders) to businesses (borrowers). Returns of investments differ for different projects/P2P platforms. In 2018, the weighted average returns are as shown:
Minterest: 3.5-24% (Weighted ave: 12.95%)
CoAssets: 9-10% (Weighted Ave: 9.91%)
Moolahsense 5.90%-16.82% (Weighted Ave: 9.9%)
Funding Societies: 6.51-17.79% (Weighted Ave: 9.32%)
SeedIn: 7-20% (Weighted Ave: 8.33%)
That said, some would consider P2P investments as high risks and is not for everyone. However it is a new financial product that investors can consider including in their investment portfolio.
Moving on, investing in real estate has always been popular amongst Singaporeans.
Monthly passive income is generated when a property is successfully rented out. While property investing is the “investment of choice“ for most Singaporeans, it has gotten harder in recent times due to loan restrictions and additional taxes. As a result of these, Singapore’s property market is not as vibrant as before.
As the headwinds for property investing grows, it may be timely for investors to explore alternative investment products.
With all these information, P2P could be a viable alternative for real estate investors who are looking to diversify their investment. As Benjamin Graham once said “successful investing is about managing risks, not avoiding it”.
Hopefully all these information will help reader manage risks better! :)
I am hard-pressed to find something that approximates a passive investment vehicle based on what you have described (assuming it is the monitoring and research that you don't wish to do). All investments carry risk and need at least some form of monitoring, so either you will have to monitor or someone has to do so on your behalf (and that will incur fees for advice).
The only truly monitoring-free and research-free instruments out there (in my view) are guaranteed investments and your first step is none other than CPF. You don't have to monitor it, just contribute to it through work and voluntary contributions if you wish, and let time and compounding do the rest.
Other passive investment vehicles after CPF include private annuities and endowments, whereby you will ensure that your predictability of funds (either maturing at one go, or over a period of time) is not correlated to the market movement.
ETF gives you access to a bunch of diversified portfolio. “It’s one of the few that the majority of advisers hate” ETF provides low cost, average returns over a long time horizon.
Search boglehead investing
In this case, I will suggest for you to work with someone competent and responsible for your wealth accumulation needs.
This is because investment yields only non-guaranteed returns. As a result, if you don't wish to monitor it, then work with someone capable to do it for you. However, you may need to pay a slightly higher fee, of course.
As such, you may consider unit trust from an insurance company, as well as a step-up guaranteed payout lifetime annuity. The latter ensures that you will receive a strong passive set of income without having to worry about volatility in the market.
I share quality content on estate planning and financial planning here.
I don't think there is a "best" form of passive investment. It really depends on you. I like dividend stocks, but it doesn't mean you'll like it too.
There is no such thing as a best form of passive investment. What works for you may not work for others, and vice versa.
Instead, understand your risk profile and what kind of returns you are looking at. When we mention passive, its not entirely true that you just put your money out there and let it grow. Rather it means lesser upkeep in terms of time and effort because you are paying someone to do it for you.
Some options that are considered more passive are:
1) Investing in ETFs through a Dollar Cost Averaging Approach - You could either do it on your own via a broker, or take advantage of robo-advisers
2) Investment Plans from Financial Advisors like myself - We assist you in managing your portfolio and aim to seek returns that meet your risk profile
Other options such as REITS or Stock Investing would require more knowledge on your end and more active understanding of the market. At the end of the day, it matters on how comfortable you are letting others (be it robo or financial advisors or bankers) manage your portfolio.
If you would like to find out more about how I assist my clients in building a globally diversified portfolio. Feel free to drop me a message at: https://www.facebook.com/brandan.chen
For me, the best form of passive investment is dividend stocks investing. You are effectively paid to own these dividend stocks as long as company is earning profits. These dividend stocks can be used to repurchase additional shares or can be received as a cash payment. Dividend stock investing is also considered as one of the best ways to generate retirement income.