Seeking the Holy Grail of passive income

Seeking the Holy Grail of passive income

It is the Holy Grail of investing for many of us: Build a big enough nest egg, generate passive income from it and retire comfortably on the steady stream of dividends.

Well, it is not just the Holy Grail for retirees these days; now investors young and old want the reassurance of a steady income after the battering our portfolios have taken in recent years.

The benchmark Straits Times Index may be up 17 per cent since the start of the year, but not before a roller-coaster ride over the past 12 months that left many of us battered and bruised.

Analysts warn that the road ahead looks bumpy, with market movements still likely to be influenced by events and news rather than financial fundamentals.

Mr Kelvin Tay, regional chief investment officer at UBS Wealth Management, says many investors want the safe haven of stable returns in an uncertain market.

"With interest rates so low, much more attention is being paid to what kinds of steady returns they can get in a market like this," he says.

Ms Jane Leung, head of Asia-Pacific at iShares, a subsidiary of asset management firm BlackRock, says that fixed income assets form a valuable core component of diversified portfolios.

"They're favoured for moderate volatility, low correlations with other asset classes and stable cash flows."

These days investors are spoilt for choice when it comes to investing in income assets.

Bonds

Probably the simplest of all income instruments is the humble bond.

In its most basic form, the bond is essentially a loan made by a lender to a borrower. The borrower pays a lender an interest rate and promises to pay back the money to the lender in full, after an agreed period of time.

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