18 December 2012

Passive Income Through Long Term Investment

I believe a lot of people who wish to achieve financial freedom through passive income. Passive Income in my definition is an income that you can still achieve while you are not actively working on it. So far, I cannot find passive income while I am not actively working hard on it, but what I can think of is to allow the people who are more capable than me to run the business on behalf of me. And I can get a bonus / dividend from there. This is by far the best term of "Passive Income" I can think of.

For example, if I look for rental income, then I must engage with property agents to help me to find the best properties that I can afford to find. But you must trust your agents to act the best on behalf of you, to get a good property with cheap price and to get a good tenants for you. If you are a people who like to be everything under your own control, you may find that there is a lot of uncertainty involved as there are more people involved in this circle. What you can do is always have a back up plan, try to engage more different team to assist you on managing your assets. Sometimes, bankers may offer a better choices to you compared to property agents, as they are more towards "neutral", as compared to agents may side sellers to get a higher commission from selling price. Of course, I do understand that there are still many property agents who are willing to help both parties to close the deals as soon as possible.

If you are a person who prefer to build assets in your own ways, you may have a steep learning curves, by engaging a lot of people, and managing the properties yourselves. You may also be your own portfolio manager yourselves one day after you have achieved a certain level, by helping others to manage their properties as well!

Long term investment can be done through many ways. What I can think of now is by:

1. People - Education

Yesterday I met with guys who shared with me on how to leverage on people to grow their business. They like to use "Business Partner" business model to grow their business. A people who likes to achieve greater satisfaction via business development is welcomed to join as a partner, to grow the business together. But before that, they must be under training to know everything on the company's products, culture and platform before they can start engaging with more others who also like to join as a team. This is by far the system that I think will work in long run, but only if the system can benefit to all the stakeholders involved - Suppliers, Company, Partners, Clients etc. This is more towards a "Direct Sales/Marketing" Business Model.

You could also have another model, where you could educate your clients, by introducing more features or services that suit their needs. It is not about hard selling, but to engage with your clients and find out what they need and try to provide the best service you could give to them.

Sometimes, we also have to groom some of our suppliers, so that the bargaining power from suppliers could be reduced. We could also always have a backup plan in case the demand suddenly shoot up and we cannot cope with only 1 main supplier.

After all, we can only be successful if and only if all our stakeholders are benefit from the whole business supply chain.

2. Money - Leveraging

I always emphasize that your money is your hard earned money. Do not ever try to spend it in a wrong way. Instead, we should borrow money within our mean to try to generate more passive income. It can be done through many different ways.

Example: 

1. You could borrow up to 80% loan in Singapore Property Investment or 90% loan in Malaysia Property Investment. But please do it if and only if this is a bargain deal. If you buy at a higher range, the higher possibility is that you may have to wait for 5-10 years to recover from your losses. But good thing is that, you do not worry of disposing off your property in Malaysia as long as you can afford to make the monthly installment payment. To my understanding, Singapore is slightly different where you have to make the payment if the banks perform "Mark-To-Market" valuation and ask you to top up the difference, which rarely happens but could happen during market crash.

2. You could also leverage on some of the financial products, such as Leveraged Forex, Warrants, Futures, or Margin Accounts. Before you started with those financial products, you must be fully understand the underlying risks involved in the financial product itself. But how to achieve passive income through long term investment? You have to manage your risk level so that you will not meet the margin call. In fact, you may spend more time on managing your risk so that the investment amount will not burst out. I encourage you to spend more time on doing "Stress Test", which you could measure the potential losses / possibility of getting a "Margin Call" during market volatility.

Please leave me a comment on your thought on long term investment. We can learn from each others.

1 comment:

  1. I enjoy learning from you for your insights into stocks and property investment. Hope you can take a look at my cashflow spreadsheet and give me some pointers.

    ReplyDelete

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