“If you don't find a way to make money while you sleep, you will work until you die.”
— Warren Buffet
While Warren Buffett might have expressed it a little too extremely, there might still be some truth behind this perspective.
Slightly more than a decade ago, buying a cup of coffee cost an average of HK$25 in Hong Kong. Today, the price of that same coffee has increased by a whopping 72%, costing an average of HK$43.
Despite the Consumer Price Index (CPI) in Hong Kong being relatively lower compared to its global peers at 1.9%, many of us have been hit by higher borrowing and mortgage costs as a result of interest rate hikes by the US Fed under the currency-peg policy.
As costs continue to rise, it’s no surprise that many of us are looking for ways to generate additional passive income on top of regular salaries to fulfil our financial goals.
In this article, we look at how passive income can benefit you, and also explore ways to generate more passive income.
What is passive income?
Passive income refers to the sources of income that are generated with almost no additional effort. This is in contrast to active income, where you earn a salary as part of your day job or from completing assigned tasks.
Here is also where some confusion typically sets in. Spending time and effort every week producing content for a video you monetise on YouTube or writing articles on a blog are regarded more as side hustles and do not necessarily count as “passive” ways of earning income.
Similarly, it also excludes income earned from active traders who spend time to engage in more active forms of investing, as that requires a significant amount of effort on their part as well.
For simplicity, passive income here is associated with those commonly in the domain of investing.
Why is passive income important?
In addition to being a method to beat inflation, earning passive income also has many benefits associated to it, such as:
Improved financial stability
Many of us have seen how the Covid-19 pandemic upended the global economy, causing many workplaces to shut down. Millions of people lost their jobs and did not anticipate that its effects would last for months and even into years.
Having another source of passive income can help to weather financial storms and provide better financial stability as you can still be covered financially even if you were to lose an active income stream.
Freedom of time and flexibility
Earning passive income could also potentially help you take the stress off being dependent on a single source of income.
By having additional ways to strengthen your financial stability, this frees up your time, allowing you to optimise other aspects of your personal finances such as your taxes.
Strengthened retirement goals
Who wouldn’t want to retire early? We’ve all heard about the FIRE movement, and if you are someone actively working to retire at a younger age, passive income can be a great way to supplement your income to accelerate your retirement goals. This is because there will generally be a limit to how quickly you can earn from your day job.
Some ways to earn passive income from investing in Hong Kong
Many people are often wary when it comes to investing their hard-earned money, but there are thankfully many different ways for even the novice investor to earn passive income.
While some sources might require a higher degree of due diligence, there are other more guided and accessible ways to do so.
Time Deposit
Also known as fixed deposits or certificate of deposit (CDs), time deposit is a popular passive income option in Hong Kong, especially in the rare encounter of a high interest rate environment like now.
However, time deposits typically require you to deposit a minimum amount of money with a bank for at least a few months to several years, in return for a fixed interest rate. It is a relatively low-risk investment with predictable returns, although one might still recall the rare occasional occurrence of bank failures such as Silicon Valley Bank in March 2023.
Bonds
Bonds are another popular option to generate stable and predictable passive income in Hong Kong. The recent issuance of the inflation-linked Silver Bonds by the Hong Kong Government received record-high numbers of subscriptions. However, to achieve the guaranteed returns, it means your principal needs to be locked up until the bond matures.
In the event where you require liquidity, there are secondary markets on the bonds, but you might potentially have to sell at a discount, which happened at the trading debut of the first retail green bond issuance by the Hong Kong Government in May 2022.
Dividend stocks
Dividend investing has always been an attractive investment strategy to Hong Kongers. Essentially it involves selecting stocks with a strong history of stable earnings and are able to pay out relatively high and consistent dividends.
However, dividend investing can also be subject to risks that financial status and dividend policies of companies might change. This week, blue chip Hong Kong developer New World Development’s shares dropped as much as 7.9% after it announced a final dividend cut by 80% to HK$0.3 per share from HK$1.5 per share the year before.
Mutual Funds (or Unit Trusts)
Compared to just holding a few high dividend-paying stocks, mutual funds (also called unit trusts) typically hold a portfolio of stocks that help to further diversify your risk.
As an alternative to dividend stocks, unit trusts that are professionally managed by portfolio managers can provide a way of hassle-free investing and is largely popular among working individuals. However, do look out and make sure to minimise potential fees involved with fund investing to maximise returns.
Property/Rental Income
Properties have also long presented as a favourite investment strategy for many in Hong Kong. Investors can benefit from a reliable income stream in a steady real estate market with consistent demand for housing.
Investing in rental properties, however, requires proper research, long-term planning and high upfront capital investment. On top, those of us who are landlords might also know the additional management burden, such as when your tenant reaches out regarding a malfunctioning air-conditioner or leaking pipes late at night!
How can I get started on passive income investing?
At Endowus, we always believe everyone’s financial situation and investment goals are unique. Individuals at different stages of life will have different financial priorities.
For example, those approaching their golden years will have retirement on their minds and prioritise more stable payouts, while a younger investor with a longer time horizon might pursue greater returns.
Most importantly, before making any investment decisions, you should plan ahead and do your own due diligence. For example, if you plan on building a dividend stock portfolio, do ensure that you conduct research on the company’s overall financial health and their plans for dividend payments.
For those who are pressed for time, Endowus’ Investment Office has curated our suite of Endowus CashUp Portfolios, where income investing is made easy, and in just a few clicks, you can get started with a solution for your specific income needs. These IncomeUp Portfolios are built upon a robust investment process and continuously monitored by our team of experts.
Alternatively, you can also pick and choose from our curated list of funds on Endowus Fund Smart (see below table). These funds, having undergone robust due diligence by our Investment Office team are managed by global renowned fund managers and provide robust levels of payouts (yielding up to 9% p.a.).
With our 100% cashback on trailer fees and allowing access to institutional share class funds, you will get the most cost efficient solution on Endowus.
Earning passive income is certainly not a pipe dream, and as we have illustrated above, there are certainly many different ways possible to earn it. Let us do the hard work behind the scenes, so you can invest better to live better.
Click here to get started with your investment journey with Endowus today.
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