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Dividend Income Investing: How Much You Need To Invest In Order To Live The Lifestyle You Want

When your passive income is enough to cover your expenses, you are financially independent – you no longer rely on your salary and you have enough wealth to sustain your lifestyle even without working.

 

This article is written in collaboration with dollarDEX. All views expressed are the independent opinion of DollarsAndSense.sg

From the age of 16, we can start working in Singapore without restrictions. We take up jobs that we can perform at, which would remunerate us for our time. We also choose jobs that preferably are of interest and hope that we enjoy the company culture and people. But among all other reasons for working in our jobs, the bottomline is that we work for compensation.

Many of us work at least 5 days a week, to ensure we earn enough money to feed ourselves, our loved ones, and also to pay the bills and our other financial commitments that we have.

Living Off Dividends

Many of us dream of a life where we are not bound by work commitments, where we can dictate our schedules, take as many holidays as we want and have the freedom to enjoy the things we love and perhaps spend more time at home with our loved ones. And above all, to have the income to be able to do all of these things.

Many people strive to achieve F.I.R.E. – Financial Independence, Retire Early. Being financially independent means that you are not reliant on the salary you earn every month and that you can live off your dividends and other forms of passive income, such as rent.

This could sound highly aspirational; however, it is possible to live such a life.

By investing in stocks and other investment vehicles that pay us dividends, we can potentially aim to earn enough dividends each year so that we can offset our lifestyle expenses and provide for ourselves and our loved ones without having to work.

Read Also: 4 Things Singaporeans Need To Think About Before Joining The “Financial Independence, Retire Early” (FIRE) Movement

How Much Do You Need To Invest To Live Your Ideal Lifestyle?

By understanding how much you need in order to live your ideal lifestyle, it will give you a good idea on how much you need to earn through passive income.

Passive income required (Based on monthly expenditure) Portfolio size needed to attain passive income required
Assuming 3% dividend yield Assuming 5% dividend yield Assuming 7% dividend yield
$6,000 a year ($500 per month) $200,000 $140,000 $85,714
$12,000 a year
($1,000 per month)
$400,000 $240,000 $171,430
$24,000 a year
($2,000 per month)
$800,000 $480,000 $342,860

 

How much you generate through passive income very much depends on the dividend yield of your portfolio.

However, do keep in mind that in general, higher returns do come with higher risk. A low-risk portfolio in investment vehicles such as the Singapore Savings Bonds would earn you a modest 2% dividend yield per annum.

Read Also: Here’s How You Can Start Building A Dividend Income Portfolio To Replace Your Wage In Singapore

Forms Of Investment That Can Provide You With This Dividend Yield

One way to earn steady monthly income is through rental income. However, not all of us have the financial ability to purchase multiple investment properties. And even if we do have the financial muscles to do so, it’s possible we may not want to.

Here are a few ways we can make our investments provide us with a steady stream of passive income.

Read Also: 6 Investments In Singapore That Provide Guaranteed Principal And Returns

#1 Investing In Individual Stocks

You can invest in companies that pay out dividends. Ideally, these companies should have a long history of paying out steady dividends to their shareholders. High dividend paying stocks include Real Estate Investment Trusts (REITs) and blue chip stocks.

REITs in Singapore are popular among investors as they make a good dividend paying stock. REITs are required to pay out over 90% of their taxable income to shareholders in the form of dividends.

Blue-chip stocks are usually the biggest and most popular companies on the exchange. They tend to have established businesses and steady cashflow. Examples of blue-chip stocks that pay out dividends include DBS, OCBC, ThaiBev and Singtel.

Dividend stocks are not only limited to REITs and blue-chip stocks. Other companies that pay out good dividends include NetLink NBN Trust, Tai Sin Electric and Jumbo Group.

Examples of stocks that can provide us with the dividend yield we seek:

3% Dividend yield: ThaiBev, CapitaLand, ST Engineering, Jardine C&C

5% Dividend yield: Singtel, UMS, Keppel REIT, QAF, Hong Leong Finance

7% Dividend yield: Frasers Commercial Trust, ESR REIT, Mapletree Logistics, SoilbuildBizREIT, Taisin Electric

#2 Invest In Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) are a basket of stocks put together by fund managers that seeks to replicate the performance of the index it is tracking. The aim is to achieve market returns similar to the performance of the index the ETF is tracking. ETFs provide investors with an opportunity to buy into many different stocks through the purchase of an ETF.

In Singapore, the STI ETF tracks the Straits Times Index, an index that consists of the top 30 stocks in Singapore. The STI ETF allows investors to invest in the 30 biggest stocks on the SGX at a low-cost. Investing in the STI ETF also provides investors with a dividend yield of more than 3% per annum.

Read Also: Why It Makes Sense For You To Invest In ETFs

#3 Invest In Bonds

There are typically two types of bonds that can be purchased – corporate bonds issued by companies and government bonds issued by the Singapore government. You can also invest in bonds through a bond ETF.

During the past year, the bond market has been heating up in Singapore, with bonds such as the SIA Bond 2019, Astrea IV PE Bonds and Temasek’s T2023-S$ Bonds drawing the interest of a large pool of retail investors. The Singapore Savings Bond, introduced in 2015, has also become a popular government bond that offers Singapore investors liquidity, a modest interest rate and capital guarantee.

When you purchase the bonds, you receive returns in the form of coupons. The interest rates for bonds differs from bond to bond. For example, the SIA Bond coupon is 3.05% per annum, Temasek’s T2023-S$ Bondshave a fixed coupon rate of 2.7%, while the SSB interest rate has been hovering around 2% per annum.

#4 Invest In Unit Trusts

Unit trusts are funds that invest in a range of investment assets. The fund comprises of money pooled from investors to form a larger investment capital. dollarDEX is one such online investment platform that allows us to easily invest in unit trusts.

When you invest in a unit trust, you are assured of a diversified portfolio that is made up of assets handpicked by the fund manager. Having a professional fund manager handling our investment comes with management fees. When you invest with dollarDEX, your money is fully invested as dollarDEX does not charge any additional fees. This means that there are no platform fees, switching fees, and sales charges incurred by investors. Therefore, the unit price investors see on each fund will be the final price with no additional charges.

Investors using dollarDEX have the option of going for dollarDEX’s recommended portfolio or opt for a regular savings plan (RSPs) or value-averaging plan (VAPs). RSPs and VAPs are ideal for investors that are hoping to invest in a regular sum of money each month. dollarDEX also provides performance data on their funds for investors to pour over and analyse before investing with the fund. Not sure which funds pay dividends? Search them easily with dollarDEX’s fund finder!

Read Also: 4 Ways Companies Can Pay Bonuses, And What You Can Do With It

A portfolio that is able to provide you with a steady dividend income stream takes years to build. A wise investor would embark on their journey towards financial freedom from a young age to make the most of the power of compounding. So start searching for the dividend paying fund that you want and start your investment journey with dollarDEX today.

dollarDEX is holding an investment seminar for beginners on 20 June 2019, even for those that have already started investing. Get your tickets to the seminar to learn more about the basics of investing, why you should start investing, and how to meet your savings goals with regular investments, even if you’re completely new to it. You will also get financial planning tips to help you meet your protection, wealth accumulation and wealth preservation needs. More details here.