Is it easy to generate S$1,000 monthly passive income?

Is it easy to generate $1000 monthly income through Investment? 

For the past few years, with increasing number of lay offs, retrenchments or voluntary resignations happening around due to AI, increased work stress or for whatever reason, this has been a topic that you may encounter when your financial consultant meets up with you and recommends you to build an investment portfolio that generates passive income for you. Normally the gauge amount would be $1,000 monthly, which is $12,000 annually. This could be your  retirement portfolio or additional income that helps you cushion part of the expenses, in the event you are not able to work.  

I have heard from ex colleague lamenting that he could not survive on just few hundreds or $1,000 monthly. So that they have no choice, but to stick on their day jobs to provide that survival and stability ( Having a job is not as stable as it used to be) .

I agree to an certain extent depending on the situation of the individual. If the person, is married with commitments such as young children and loans to pay, then that amount is certainly insufficient. If the person is single, with no commitments, then perhaps this amount is sufficient and should cover significant part of the necessary expenses. 

However, while speaking with this colleague, coming from the same financial services industry and he was much more experienced in years, it dawned upon me another question:" Did he not build an investment for that additional income during these years?" Of course, this question stayed in my heart.

Let's come back to the topic to answer why would i think in this way. 

Is it easy to generate $1,000 monthly passive income? The short answer is No. 

People may think it's easy. (Even some people in the industry does that, lamenting $1,000 monthly passive income is not enough) The fact is : Do they have the excess funds to generate that income first? 

Let's do some calculation : 

Generating $1,000 monthly income will be $12,000 per year.  Based on a 4% yield. You will need an Investment fund amount of $300,000.  ($12,000 / 0.04 (4%) ). 

5% yield = $240,000 

6% yield = $200,000

Higher yield, Lower investment amount needed. However that will also meant higher overall portfolio risk, when higher yield instruments are introduced to the portfolio. 

Hence, how many regular folks out in the streets have that excess funds of $200,000 - $300,000 to build that income generating portfolio? The answer, not a lot . 

Is it easy? No. 

Is it doable? Yes, and it takes time. Unless you have that amount right off the bat.  

These "passive" income are not passive, as it requires funds, time to accumulate, and is subjected to market risks. 

It is never easy. 

Why 80% of the Retail Investors Lose Money in the Markets

It has been sometime since my last post. Many things happened along the way, and if you're happened to pass by, take this post as a fate that we interacted.

Was a sales person in the Financial Services Industry, particularly in the securities brokage for a couple of years and interacted with different clients from all walks of life. Many looked nice on the surface, with nice or fanciful job titles like myself does, but when it comes to their investment portfolio, 80% of these Retail Investors lose money and do not know what they are doing. 

So here are three main points on Why 80% of the Retail Investors lose money in the Markets :   

1) Too much focus on fees, commissions and the "freebies" 

Over the past 5 to 6 years, we can see there are more discounted brokers coming in to compete with the traditional brokers. They are very much competitive in fees and commissions charged, with user friendly platform interface, and coming out with all kinds of "freebies" such as open an trading account, park in an X amount of funds and holding it for X days to X share. Coupled with the online "Finfluencers" actively promoting these low cost brokers platform. 

Retail Investors are spoilt for choice, isn't it? They will compare and ask questions like "This broker is giving me X share and X benefits for referral, what can your side give?" " Your broker is too expensive in fees and commissions! The other broker provides free commission being charged! What benefits can you provide?" 

There is nothing wrong in focusing on fees, commissions and the so call "freebies".  However, too much focus on it deviates the fundamentals of why are you investing/trading in the Markets.

For experienced sales person, just hearing such questions and a few prompts to the client. they would be able to sniff out who are the experienced and valuable clients in the markets for long, and those not so. 

The not so experienced client or i term them " noob " in the markets, usually focuses too much on the charges and key words they like to repeatedly use are "free" "benefits". They usually do not have an high investment amount to start off with, probably the max they can go is four digits, not even five. Yet, they think this amount is a damn big deal to move the markets ( It's a big deal to them though). That's why the focus is always on fees and the "freebies" . 

Do they know that "freebies" such as X share kept in their trading account does charge a monthly custody fee if their account remains trading inactivity for a certain period? Do they know "freebies" such as what ever online trade vouchers the platform broker gave, requires them to spend first before activating the vouchers? Do they know 20 years ago, brokers were charging  USD$15 per trade in commission for US trades?  Those who were out in the markets for long would know how  much trade charges were then.

Hence, most of these Retail Investors had deviated from the fundamentals of investing/trading which are the portfolio overall returns and risk management, to chasing the cheapest fees, and whatever benefits they could try their hands on. 

2) Lacking of Portfolio Management Concept

The Inexperienced Retail Investors normally would see their stocks as individual stock each, and trades it individually for whatever reasons. Typically their holding period is also very short, probably in the range of days. They pride themselves as Investor, but are acts like a trader or a better term for it is Speculator. 

When Markets goes against them , they start to panic sell whatever they had. The lack of Portfolio Management Concept does not allow them to see whatever stocks or asset classes they had allocated as a totality of their Investment Holdings. 

The inexperienced Retail Investors lacked taking into account of how much each asset classes form part of their Total Investment Portfolio. Without this, it also concludes they lacked Risk Management. 

An example would be a 100k Portfolio consisting 60% equities and 40% bonds. When the equities portion took a hit and loses 10k. The total value of the Portfolio now stands at 90k, which now comprises 55~% equities and 45~% bonds. The volatility of the Portfolio has been cushioned off by the bonds portion compared to an 100% Equity Portfolio, single asset class portfolio, which might loses more. By going 100% Equity Portfolio, Retail Investors also need to take into consideration of which Market, and what sector are they invested, in order for proper risk management. 

An example of  of even in 100% Equity Portfolio, there is still need for diversification into different markets for risk management. 

   

3) 人云亦云, Following the herd without doing due diligence

For the past few years, especially during covid times. There were sudden sprouts of people getting interested in financial and investment related topics, hence that is also the time where "finfluencers" were born. 

These "finfluencers" provided a more interactive financial information to the viewers on top of the regular financial websites and applications. 

Financial information were everywhere now, and that is where most of the "Noob" Retail Investors made the mistakes of investing/trading blindly without doing proper diligence. 

Remember the case of Luna crypto coin crash in 2022 where many Retail Investors were burnt. The co-founder was later found to be involving fraudulent acts. (https://www.forbes.com/sites/qai/2022/09/20/what-really-happened-to-luna-crypto/)

For Most Retail Investors, the deadliest mistakes they can made is to believe any financial information provided due to complacency  without doing much due diligence themselves whether it is a financial product or financial service related, which potentially cost them life savings. 

I have been seeing euphoria in the markets for the past 1 year. I had friend/s who are not in the business acting like they know it all, telling and advising you what you should do, while they blindly follow the mass based on the stocks they picked and highlighted.  They, like the 80% of Retail Investors, do not know what they are doing. 

 

           

Repercussion of " Have Fun Staying Poor"

 

For the past 2 years, we have seen the market bull run mainly in technology and the crypto realm. 

For the past 2 years, we have also seen a new breed of investors jumping on the bandwagon especially so in the crypto space. 

There are also bloggers or youtubers suggesting  putting less than 5 to 10 % of their total investment portfolio into crypto currency, but from what i see, how many of them really does? 

Some became "millionaires" during this crypto bull, and some lambasted " Have Fun Staying Poor" on people investing other assets than crypto. 

Lo and behold, Luna saga came and crypto crash. 

These new breed of investors or speculators tasted Repercussion of "Have Fun Staying Poor".