5 ways to earn passive income in Singapore

The MAS Monetary Policy Jan 2024 statement offered some good news: core inflation in 2024 is expected to ease to an 2.5per cent to 3.5 per cent. While it warned of a dimmer outlook for Singapore on the back of continued troubles in the global economy, the statement is nonetheless a hopeful one.

CPI-All Items inflation averaged 4.8 per cent in 2023, down from 6.1 per cent in the preceding year. Yet, for the average Singaporean, this means everyday prices are likely to remain elevated.

Perhaps there is no better time than now to consider increasing your income by taking on a side hustle or setting up a passive income stream. Here are five ways to generate passive income in Singapore, ranging from investing to property ownership and utilising your passion and hobbies.

1. Dividends from REITs, stocks and bonds

Pros:

• True passive income on a regular basis
• REITs and stocks generate potentially higher returns

Cons:

• Dividends from stocks and REITs may fluctuate
• Income from bonds may be low
• Need to build up a large position to reach significant passive income levels
• Does not offer much capital appreciation
• Underlying stocks, properties and bonds may fall in value

Investing is one of the best ways to achieve true passive income – all you have to do is to put in the money, then let the market work its magic and pay out returns in time.

Of course, to achieve a passive income stream, you have to first invest in income-generating instruments such as REITs , stocks, and bonds .

Let’s start with stocks. Companies that have matured and achieved consistent profits often offer dividends as a method for sharing profits with their shareholders. Each share held entitles you to a payout, for example, S$0.50 per share. So, the more shares you hold, the higher the amount you will receive.

Dividends may be paid out quarterly, every six months, or once a year, and it is this regularity that makes dividends attractive to those who invest for income. However, note that dividends paid out from one tranche to another are not guaranteed and may not be stable.

In any case, the idea is simple: Collect enough of these dividend-paying stocks and you could attain a considerable passive income stream to supplement your regular income. And because you need to own the stocks to be eligible for the dividends, you’d be building up a stock portfolio at the same time.

Similarly, REITs (real estate investment trusts) also generate regular dividends for investors who hold their shares. The difference is the dividends are mainly generated from rental income collected from the commercial properties held in the trust.

Meanwhile, bonds – which may be issued by governments or private corporations – also generate passive income for holders. Instead of dividends, bond holders receive coupon payments throughout the duration of the bond.

So for example, if you have a 10-year bond with a coupon rate of 3 per cent, you will receive 3 per cent interest per year for 10 years (or until you sell the bond off). As bonds are traditionally negatively related to stocks, it’s a good idea to include a mixture of dividend stocks and bonds to hedge against market risks.

Dividends and coupons sound pretty appealing, so what’s the catch?

Well, generally speaking, dividend-paying instruments don’t offer much in the way of growth, so having too many income-generating assets may not be the best strategy for investors looking for capital appreciation.

Also, the underlying stocks, bonds and properties may fall in value, which will bring down the value of your overall portfolio.

Lastly, while it’s nice to be able to live purely off dividend income, you’d likely need to have a large portfolio, perhaps seven-figures, which may not be easily attainable for everyone.

2. Endowment plans with cashback feature

Pros:

• Can choose to receive regular payouts or defer them to accumulate interest
• You’ll receive insurance coverage for the duration of your plan

Cons:

• Such plans are often inflexible, and require a disciplined approach
• Investment returns may be poor compared to investing in the market

Endowment plans – aka insurance savings plans – commonly come with a cashback feature. This means you can choose to make a withdrawal from your plan, up to a fixed amount every year.

In an endowment plan, the premiums you pay are invested by the insurance company on your behalf. In return, you are entitled to a certain level of interest on your premiums each year. Any cashback not withdrawn will also earn interest, although the rate may be slightly lower.

By compounding your yearly gains, your endowment plan grows in value. This also helps you to have your cashback without wiping out your endowment plan. And to ensure that your endowment plan continues to grow over the long term, your cashback amount is restricted to a percentage of the total premiums paid each year.

Based on the premiums you pay, you will also receive a certain level of life insurance coverage. Your insurer may also offer additional riders for coverage against other events, such as total and permanent disability, or critical illness .

In summary, endowment plans can act as a source of passive income that you can tap on whenever the need arises. Since the cashback you can withdraw is a fixed amount, you have clarity about how much additional income you’ll have each year, making it easy for, say, planning your year-end holidays.

You can also accumulate your cashback – say, over five or 10 years – and withdraw the entire sum at one go to meet large expenses, such as a wedding or a car down payment .

Be mindful, though, that endowment plans come with strict terms and conditions, which are often fixed and immutable. Thus, you need to be sure of your ability and willingness to commit to the duration of the plan once you sign up for it. The cashback amount is also fixed, so you should be cognisant of the potential limitations that may arise.

3. Rental income from property ownership

Pros:

• Can be lucrative, if managed properly
• Scalable over time
• Regular monthly income

Cons:

• Requires substantial starting capital
• Must be prepared to deal with multiple issues from property maintenance to tenant troubles

Another popular method for passive income is collecting rents on properties you own. This can range from renting out your spare bedroom, to purchasing an entire condo unit, shophouse or office space and renting it out for income.

Given the perpetual red-hot property market in Singapore, this can be a lucrative way to get the passive income you want. But, you’ll have to own a property to begin with.

Also, while being a landlord is generally seen as a good thing, the reality is far from glamorous. Between property maintenance issues and troublesome tenants, there’s plenty you’ll need to manage.

Importantly, you may make a mistake calculating your rental yield, overestimating your returns. This can quickly turn into a financial morass that may be difficult to get out of. Hence, be sure to proceed carefully and it wouldn’t hurt to consult an expert or two.

4. Private-hire driver or food delivery rider

Pros:

• Potential for good pay, especially during peak periods
• Flexible schedule, can choose your own hours

Cons:

• Need to have your own means of transport
• May have unpleasant encounters while on the job

Private-hire and food delivery are proving to be resilient mainstays of the gig economy , providing a viable option for those who don’t mind exchanging their free time for some additional income.

The main draw of such professions is the flexibility. You can choose your own hours, which also means you can have a say in how much you want to earn.

However, the reality is a little more nuanced. Your earnings are highly dependent on customer demand for the day, but on the flipside this also means the potential for good earnings if you are able to target the right timings, such as public holidays and peak periods.

Of course, you’ll need your own means of transport appropriate to the role you choose. Also, as your chances of getting into an accident will be heightened due to increased exposure to the roads, you should make sure you have sufficient insurance coverage.

While the chances may be slim, you may run into a rude or unreasonable customer. If you’re unable to take such encounters in your stride, you may end up being quite badly affected, which may make the side hustle not worth your while.

5. Part-time tour guide

Pros:

• Share your passion and interest while earning money
• Meet and interact with new people

Cons:

• Earnings may be sporadic for part-timers
• Requires a licence
• May be physically challenging

Lastly, if you’re particularly interested in history or the arts, and love talking to others about it, being a part-time tour guide may be ideal for you. The role will allow you to indulge in your interests, while earning some income on the side.

There are some things to note though. Firstly, you are required to obtain a tour guide licence before you can formally work as one, even on a part-time basis. This means you’ll need to invest some time and be willing to undergo the required training.

Secondly, earnings can be sporadic, especially for part-time tour guides. This is because customers may cancel or not show up, or the weather may take a turn, which can affect walking tours that take place outdoors.

Additionally, being a tour guide can be a physically demanding job, involving a fair amount of walking while lecturing and explaining to your customers on the various points of interests along the route.

You’ll also need to have good time management skills, as you’ll need to ensure the tours start and end on time.

ALSO READ: 5 best regular savings plans in Singapore 2024: Invest with $100 a month

This article was first published in ValueChampion.