Great, thanks mate, that clears a lot of things up. Let's have a look at what we can do.
Righto, I can tell you right off the bat you're not going to be able to do that. $5k a month on $700k of cash is an 8.5% yield; you can't get that without taking some serious risk, and anyone who tells you you can is lying.
You can't get enough passive income to quit your job - but you can set yourself up to quit your job a few years down the road.
Also - you don't need to be so fixated on "passive income" and dividends. (In fact, "passive income" is always a red-flag phrase for me - I tend to hear it attached to real-estate scams and MLM organisations, so people offering me "passive income" make me run a mile in the other direction.)
Think about your total capital growth - capital gains and dividends - rather than just dividends. For example, US stocks have tripled off their lows since 2009; that's 200% in capital gains and about 10% in dividends. Nobody's been buying US stocks for passive income.
OK, these are good ideas! We can do better, though.
If you go out and get a mortgage to buy a shoebox condo somewhere, then you really won't be able to quit your job - you'll have to keep working for thirty years to service the mortgage.
Also rental yields in Singapore are deeply sh!tty: your gross yields have a 2 or a 3 in front of them, which is nowhere near your "$5,000 a month". After costs you'll be lucky to break even.
So let's rule out real estate for now. Let's look at stocks and bonds instead. (Also if you stick to stocks and bonds you don't have to deal with sleazy agents and pay the huge fees that come with buying and selling real estate. Leave real estate to the money launderers.)
So if you're somewhere between 30 and 35, you're basically exactly like me - in possession of a decent sum of cash and you want to invest it for the future (and if it happens to start throwing off fuçk-you money, then that's a bonus).
You want your money to be mostly in stocks - because this is money for the long term, and nothing (except maybe owning your own business, but that involves a lot of hard work and a big slug of luck) makes long-term money more reliably than stocks.
But you want some bonds as well. Bonds are like your boring bank-account money - it doesn't go up much, it doesn't go down much, it makes you a little bit of interest in the meantime. But most importantly, if stocks have a bad year, bonds are your ammo to go in and buy some more stocks when everyone else is panicking and selling. Good companies were going cheap in 2008, and the people who had spare money to buy those good companies are the people who made the most money in the ensuing five years.
At your age, you can afford to mostly be in stocks. You've got twenty or thirty years to retirement; you can afford to take some risk. My usual ratio is "100 minus your age in stocks", which would put you 70% stocks/30% bonds. I go a bit more toward stocks (80/20), because I think bonds are expensive right now; but if you care more about income than capital growth then 70/30's a good ratio for you.
Now: how do we do that? How do we build our 70/30 portfolio?
Let's look at the "bonds" bucket first, because that's pretty easy. First things first, you don't want to just rock down to the bank and say "I would like $210k of a Bond, please", firstly because that's not quite how bonds work, and also because if you do that they'll give you the crappiest thing in their portfolio. You don't want that. Banks are not your friends.
You'll want to build your portfolio using bond ETFs. If you don't know what an ETF is - basically, it's a fund that holds lots of stocks (or bonds), so it's like a unit trust, but it trades on the stock exchange like a stock, and you can buy and sell it whenever.
Let's pick some bond funds for you.
First one, and let's put 20% of your portfolio in this, is A35, the ABF SG Bond ETF. This is a bond ETF that invests in investment-grade SGD bonds - so it's rock-solid secure, it has no currency risk, this is "safe" money. It yields about 2.25%.
With the remaining 10 percentage points of your portfolio that's going into bonds, you can afford to take a bit more risk.
Let's put 5% of the portfolio in QL2, the iShares Asia USD Credit Bond Fund. This does what it says on the tin: it invests in USD-denominated debt of Asian governments. You have some credit risk from this, but you get well compensated for it, and some (very small) currency risk too because it's in USD. It yields about 4%.
And let's put another 5% in QL3, the iShares Asia High Yield Bond Fund. This one invests in higher-yielding debt from risky issuers; you have more credit risk from this, because some of the issuers will inevitably go under, but it yields nearly 7%, so you're being well compensated for the risk.
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Now, for stocks, you'll probably need to go offshore. The lineup of stock ETFs in Singapore is a bit limp unfortunately.
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You'll want to put a big chunk of your money into Singapore stocks, because that's what you know best. 50% of your portfolio is a good number.
Take that money and put it into ES3, the Straits Times ETF. This ETF owns all the stocks in the Straits Times - all 30 of them - so you get instant diversification (you never have to worry about one company doing badly) and a nice dividend stream. It also yields about 2.5%, which is nice.
Then let's go offshore: let's buy you all the rest of the stocks in the world. For this one, you'll want to open up an account with Interactive Brokers, because they let you trade overseas stocks very cheaply (unfortunately they don't let you trade Singaporean stocks, or I'd use them for everything). Fund your account with the remaining 20% of your portfolio, and then buy VWRD, listed on the LSE.
VWRD is an ETF that invests in every stock in the world. This gives you exposure to global stock markets, and helps you insure against the swings and roundabouts of individual markets.
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So, in summary: open up a Singapore trading account for most of your funds (for your size, I think the DBS Vickers cash-upfront account is the best bet).
Buy the following:
$140k of A35 (20%)
$35k of QL2 (5%)
$35k of QL3 (5%)
$350k of ES3 (50%)
(Why are we buying international bond ETFs in Singapore? Because when you buy them in Singapore you don't get taxed on the dividends - and that means more cash in your pocket.)
Then open up an Interactive Brokers account for your overseas funds.
Buy the following:
$140k of VWRD (listed on the LSE) (20%)
There you go: you've got a great, balanced portfolio that yields about 3-4% and will throw off some healthy capital gains as well.
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There's one more thing you'll want to do, and that's a little thing called "rebalancing".
Sounds scary, but all it means is each year (I like to do it in mid-December), you look at your portfolio, and sell or buy your funds to bring them back to their original ratios.
Let's say stocks have a great year, and ES3 goes from 50% of your portfolio to 60%. What you'll do is sell down some ES3 so that it goes back to 50% of the portfolio, and buy the other funds in proportions to bring them back to their original weightings.
(Why do this? Because it forces you to not be greedy - you sell your winners and buy the losers, and that's a winning strategy over the long term.)
That's it. It takes ten minutes a year, and then when you're done you can go to the pub and treat yourself.
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Hope that helps. If you've got any more questions, or if you want me to help with executing the trades, drop me a PM.
Shiny Things wrote:Yep, VT is the US-listed version of VWRD (actually VT is the original, VWRD came later).
The only difference between the two is that VWRD gets slightly more favorable dividend tax treatment - dividends get taxed internally to the ETF at 15%, instead of being withheld at 30% - but generally the brokerage is a shade higher on VWRD because it's on the London stock exchange.
Both of them are on IB. You'll find VT listed on NYSEARCA; VWRD is on the LSE.
Shiny Things wrote:OK, there are a couple of good answers to this question.
Answer 1: do it all in one hit. This should be fine, unless you're doing really large amounts of any given stock; in this case, the only one I'd think twice about is ES3, and you should still be able to do that in a couple of days tops without too much market impact.
Answer 2: do it in 3-4 monthly tranches. You'd probably do this if you're worried about buying high, and want to make yourself feel a little better if you buy it and it dips 1% the next day.
I'd personally go for answer 1, though if you're doing a million bucks in a not-particularly-liquid market like Singapore you might want to think about #2 (or get me to help you with executing the orders).
All these taken from this thread on saving up and investing for the long term
from HWZ - money mind subforum stocks shares and indices
http://forums.hardwarezone.com.sg/stocks-shares-indices-92/s%24700000-4734278-2.html
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