After going rounds in circles trying to profit via different means, think at the end of the day, we should just go back to basics and remembering why I wanted to invest for.
Journey to Financial Freedom Through Passive Income
Although I have not exactly forgotten why, I kept deviating away from the path of my journey with hopes to earn more profits. Not only did the deviation cost me some monetary losses, more importantly, time was lost and here I am again standing at the starting line of the race.
What Went Wrong?
Investing for passive income generation is a long journey. Along the way, you seen cars zooming past and you hope you could hop on and it can bring you to your destination faster. However, most of the time, a ride on the highway is not a free ride. Without the right experience and knowledge, you will be brought to the same point (even worse, further away from your destination), yet having to pay for the ride.
That was what happened to me. In the midst of my journey, I saw another investment vehicle which has the potential of profiting $10,000 a month. But after a couple of setbacks, I lost almost all my $5,000 worth of investments and decided that the kind of investment does not suit me at all and thus decided to stop. All within a month (shall not say what is the investment as I can only say I did not have the experience nor the knowledge to profit in it). It was only then, it daunted to me that investments should not be that hard or risky.
A New Portfolio is Born
What could be more easy than to make regular investments in shares for dividends, reinvest the dividends and at the end of the term, collect a monthly paycheck?
One of the simplest method in investing is income investing. Income investing involves three key points:
- Investing in companies that pays dividends,
- Reinvesting in the dividends paid and
- Compounding Interest.
Adding on to the three key points of income investing, I have added another point Dollar Cost Averaging.
Not hard right?
Details of My New Portfolio
My new portfolio is about finding stocks of companies that I can invest in that pays dividends to their shareholders. Not only that dividend payouts must be consistent, dividend growth is equally important else a huge capital is required to achieve the monthly $3,000 paycheck that I am looking for. Guidelines in looking for these companies, in term of their dividend policy, is the company should be paying a dividend with a yield of approximately 2-3% and it must have a good history of paying growing dividends (preferably at approximately 10% annually).
Will be diversifying my portfolio, investing in companies in 4-5 sectors while limiting the number of companies to around 15-20. To achieve that and reduce the cost of commissions, I will be looking at adding new companies into the portfolio for the first year or two before adding positions to the individual companies.
Deciding between investing in Singapore or US shares, I had chosen the latter as my US broker allows me to do dividend reinvestment (or DRIP) which is yet another key point. Yes, we can keep the dividends and manually reinvest the dividends annually or as an when the sum of the dividend payouts allow me to buy a lot. But in income investing, the earlier I start, the earlier I will reach my goal.
Finally, as I do not have a huge capital to start off with, I will work with regular investments of $500 monthly adding more when I can afford. This not only allows me to kick-start my investment journey earlier, dollar cost averaging strategy is also used and I do not need to hold my investments and regret while seeing the price keeps going up.
When am I Starting?
Well, I have already started my new portfolio, technically in the month of July 2015. Made my first addition to my portfolio in early August and my second addition to the portfolio just yesterday.
The Bottom Line
Investing should not be a time-consuming task especially if passive income is to be generated through investing (else it should not be called passive income). A simple reminder on the rationale of why the portfolio is created will help to keep me in my path on my journey to financial freedom.
P.S. Will try to write the rationale to the second company I have chosen to invest in a.s.a.p.
Edited (August 20, 2015): I have added my rationale to the additional of Johnson & Johnson to my portfolio. Have a look here.