I found a bit of renewed energy with increasing the passive income I get. There are a few reasons for this. Firstly, I assumed that equities would outperform fixed income, and the principal from fixed income would drop as interest rates rise. Hence, I’ve been investing much more into stocks, with good results.

But their returns can be pretty lumpy. I couldn’t really sell my largest holdings of growth stocks for the first half of 2021 due to the price drops, and even in rally mode now I’m reluctant to take profits. Why sell something that will be worth much more in the near future?

Secondly, I hadn’t realised till recently that mutual funds could offer 10% and more in (leveraged) returns even in this kind of low-interest environment. Most of the investing world has been dismissive about fixed income and bonds for a while now. But I find there are still pockets out there that offer good opportunities, such as Chinese bonds. Despite the alarmism in Western media about Chinese debt, the 10-year chart looks fairly smooth. I studied the market for a while now, and I can’t find any historical systemic or widespread debt failures in China. Even if interest rates rise and prices do indeed fall, the net-net return for fixed income should still be positive in the high single digits. Maybe still less than stocks, but cashflow would be far more consistent.

Finally, my main source of income, the disability income insurance (DII), is unstable and unreliable. The insurer often delays the payout or claim process for one reason or another, and it can be many months before I receive cash in my account. This leads to cash flow problems, where I have to draw upon my margin account or sell stock to cover living expenses. This was especially tough in the first half of this year, where most growth stocks were down 30%-50%.

Here is how my passive income currently stands:

NameCapital InvestedYearly Leveraged ReturnNet
Temasek 3.625$110,00010%$11,000
Pimco Income Fund $77,0009%$7,000
Blackrock China Bond Fund$46,00017%$18,000
Leveraged Annuity$53,000-4%$-2,000
Disability Income Insurance NANA$37,000
Total$286,000~$60,000
Monthly: $5,000

After factoring financing costs, I have about $5,000 in monthly passive income. That’s about enough for my personal spending and (lion) share of household expenses. When my leveraged annuity matures in 2025, it will stop being a drag on returns and add another $800 to my monthly passive income.

What I want to do is to keep setting aside profits from stocks to pump into fixed income. I will be flexible about this, and adjust based on how my stocks are doing. But the general idea is to set aside enough to give myself a $500 monthly increment every year. At 10% returns, this means setting aside at least $60,000 every year. I’m already on track to get about $7,000 in 2025 with my current trajectory. A good goal would be to hit $10,000 instead.

Admittedly, there is some psychological aspect to wanting a guaranteed amount every month. My monthly salary used to be around $7,000 with bonuses, and I want to keep income around there to not feel like I’m living a downgraded lifestyle. With $10,000, it would lessen my guilt about not being in the corporate rat race. It actually doesn’t matter, but I think I would be more secure if I could achieve that.

There are some practical aspects to this too. I do expect that my expenses to increase as my kid grows up. We may upgrade our home. There are rising medical expenses to think about. Inflation will play a big role too. So I don’t think I can remain stagnant at $5,000 a month. It’s comfortable, but there is not much left over each month.

While I can achieve over $10,000 passive income a month now (it just takes an additional ~$500,000, money I already have), that would entail taking on more debt than I’m comfortable with. Every $1 invested in a leveraged instrument calls for $3-$4 in debt. Besides, I’ve found that my stock picks perform at least twice as well as whatever my fund managers do, with much less debt and risk. Even in the long-term, I would want to keep at least 67% of my assets in stocks, with the remainder in cash and fixed income.

I’m hitting a cap on the credit line that my privileged banking provides though. While I had planned to invest another $34,000 into Chinese bonds, they have asked for another show of funds of $150,000 to increase the line. I don’t want to sell any stocks now, so I will pass on that. But my banker is promising to push me to private banking next year, so that will open up new credit lines and investment options. I can also go to another bank to start a new relationship, but I would have to raise even more cash at the start. On balance, I can wait for 2022 to add. 2021 seems to have passed in a blink of an eye, and we are already halfway in.

Hope this post lets you know what I’m planning for! What’s your passive income plan?

3 thoughts on “[Premium] Planning my passive income for the next 3 years

  1. In your opinion what is the best disability income insurance plan to get? Is it the one you have, and are you happy overall with the claim experience on your policy even as there has been occasional delays and administrative hurdles?

    1. “Best” is a bit subjective but the most expensive plan on the market is from AIA I believe (https://treeofwealth.sg/best-disability-income-plans-singapore-2020-the-ultimate-guide/). I can say that is not the one I have haha. I rather not name my insurer to stay out of trouble. And despite all the delays and administrative headaches, they have paid out. I would begrudgingly say DII is still essential because it covers far more conditions than say critical illness, so do get one if you haven’t already!

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