3 Characteristics of a Sustainable Passive Income Source


26 Oct 3 Characteristics of a Sustainable Passive Income Source

If your goal for your long-term investment portfolio is to eventually generate passive income, this is for you.

Passive income can come from bond coupon (interest), real estate rental income, unit trust royalties, stock dividends, annuity payments and intellectual property licensing income.

When building a passive income stream, make sure that it has these 3 characteristics:

Safety Net

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1. Safety

Before looking at the potential dividends you will receive, always make sure that the stock you invest in is safe.

Do your due diligence. Find out the financial health of the company. Find out how the company sustains their dividend payout.

The last thing you want to happen is to have the company you invested in fold.

growth stage of company

2. Ability to Grow

A good investment should ideally become more valuable over time because the business is doing well and the management knows what they are doing.


3. Diversified

To ensure that your portfolio can withstand market movements and changes in the economic cycle, make sure that your portfolio is sufficiently diversified.

Having 10 stocks that produces $10,000 in dividend would mean that on average, each stock is responsible for about $1,000 of dividend. While owning 2 stocks that produces $10,000 in dividend means that each stock provides an average of $5,000 of dividend income.

It is easier to find stocks to replace the one that is responsible for $1,000 dividend compared to the one that provides $5,000.


Track Your Portfolio Annually

Set a specific time each year to review your portfolio. Can’t decide on the date? Just use your birthday, its easier to remember.

Go through your current investments and analyze them. Make sure they’re still offering you growth, diversification and safety. The time you take to do this is a small price to pay for your peace of mind.

There are many ways to build a passive income stream. Here’s one.


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