How much passive income will you get from your portfolio?

Let's set the context straight from the get go. 

Passive income here refers to the following. I quote from here. 

Passive income can be loosely defined as income that continues to be earned after some initial work, and that requires little-to-no daily effort to maintain. Examples of this could be rental income from an investment property, dividends from a business that you own, or even royalties from a book or a piece of music.

In this post, the passive income refers to the dividend from that shares(stocks) you buy. I quote from here. 

A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date. Dividends may be paid out as cash or in the form of additional stock. 

Yes, some companies do give you regular payments based on the number of shares you have. These are the dividends. However, not all companies pay out dividends. As for REITs listed in Singapore, it is compulsory that they pay out 90 percent of their income annually in order to avoid corporate tax.

For sake of discussion, i have not considered capital appreciation/depreciation of the portfolio to make the discussion easier to follow. 

In the previous post, I started calculating my annual expenses in order to get an idea of the value of the portfolio required in order for us to retire/fire based on the percentage rule (which ever percent you subscribed to). However, like all things in life, situation is fluid and ever changing. Your portfolio yield maybe 5% this year, but it can also be 6% next year due to improved sentiments or 4% due to a recession or something. Thus, our expenses should adapt to what our portfolio can achieve. So now, we have flipped it around using the yield to manage our expenses. Yield is not something you can control easily , but how much to spend is entirely up to yourself. 

Using the table below as an example, if you have a 840k SGD portfolio, you get 33.6k SGD dividends based on 4% and so on , so forth.  If you started out thinking that your yield will consistently stay at 5% and your expenses are pegged to 42k SGD per year, you will have a problem if the interest rate increases and the resulting yield is  just 4%. Your shortfall will have to be taken out from your portfolio. This is not something we want. So we need to be careful on our expenses and adapt to the current situation.  For myself, i will aim to spend below the estimated yield so that the rest of the money can be reinvested to grow the size of the portfolio.

Like i said previously, it's easy to do the math and come out with some targets/kpi for yourself. The difficult part is the actual walking the talk, to really start buying shares. I have met with many people who have been telling me they really want to start investing their excess cash, but years down the road, they are still saying the same thing and they dont even have a trading account after years of talking. Why like this?

Thats all folks for today! As what bruce lee said, be like water, my friend!

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