I am always thinking about the best way to deploy our family capital to earn passive income for my family. It is not that easy. Especially, when investing and reinvesting larger amounts of money.
In addition to Active Income, we invest all our savings into four money-generating asset classes to earn Passive Income. As of today, all of our investments are in real estate, bank deposits, online business and stocks. These four different investments generate us monthly and quarterly passive income streams from rent, interest, profit and dividends respectively.
Let’s consider strategies, timeframes and progress for each of those assets.
1. REAL ESTATE
Real Estate is a well-established passive income source bringing in stable returns in the form of Rent.
PURPOSE: Preserve large amounts of money and benefit from the growth of the Chinese economy, especially the real estate sector.
TYPE: Residential apartments with different number of rooms located in different communities around the city.
COUNTRY & CURRENCY: In China in Chinese RMB.
PERCENTAGE OF PORTFOLIO: 60%.
CAPITAL REQUIRED: Very large.
FEES: Very high around 3%-5%.
RETURNS: Around 5% on average after all property management fees, sporadic maintenance costs and TAXes.
RISK: Medium risk.
WORKLOAD: Time consuming.
EASE OF LIQUIDATION (turning into cash): Takes long time and difficult.
STRATEGY: Maintain without change as we are not planning to add any new rental apartments or reduce our real estate holdings. Everything goes well.
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2. BANK DEPOSITS
Bank Deposits include making long-term bank deposits over the period of three years, and then let them compound indefinitely to earn Interest annually.
PURPOSE: Hedge against market volatility instead of bonds.
TYPE: Different length of deposits held in different banks.
COUNTRY & CURRENCY: In China in Chinese RMB.
PERCENTAGE OF PORTFOLIO: 35%.
CAPITAL REQUIRED: Very small.
FEES: 0.
RETURNS: Around 3% on average. There is no Individual Income TAX on bank deposits in China.
RISK: Low risk.
WORKLOAD: Not time consuming.
EASE OF LIQUIDATION (turning into cash): Takes long time to wait until maturity, but easy.
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3. ONLINE BUSINESS
Online Business includes building the website by publishing quality content to gain readers globally as well as develop the YouTube channel to earn Profit.
PURPOSE: Diversify from active income for the future.
TYPE: Different revenue sources including advertising, affiliate marketing, selling own products, etc.
COUNTRY & CURRENCY: In Poland in Polish PLN.
PERCENTAGE OF PORTFOLIO: 0%
CAPITAL REQUIRED: Extremely small.
FEES: Around USD100 per year.
RETURNS: Returns from Investments (ROIs) in new websites are potentially extremely high reaching a few thousand percent.
RISK: Very low risk.
WORKLOAD: Extremely time consuming.
EASE OF LIQUIDATION (turning into cash): Long and difficult.
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4. STOCK MARKET
Stock Market includes investing in individual stocks, REITs and ETfs at NYSE and NASDAQ in the US to earn Dividends.
PURPOSE: Benefit from the growth of the American economy, especially the largest American companies.
TYPE: Owning three different types of marketable to include around 30 high quality stocks.
COUNTRY & CURRENCY: USA in American USD.
PERCENTAGE OF PORTFOLIO: 5%
CAPITAL REQUIRED: Low
FEES TO ENTER: Around USD0.35-USD1 per order
RETURNS: Not planning to beat the market. Just focusing on generating 4% per year from dividends while growing the portfolio steadily at 10% per year on average. My strategy is about low risk and low volatility.
RISK: Medium risk to high risk
WORKLOAD: Time consuming
EASE OF LIQUIDATION (turning into cash): Quick and easy
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In the next few years, I am looking forward to gradual increases in passive income from dividend stocks to grow the snowball. Here is more information about my plans:
- Brokerage account to buy stocks: I use Interactive Brokers as my brokerage account because it gives me access to lots investment instruments from around the world. Also, commissions charge by this broker for buying and selling stocks are very low (around $0.35 per trade). So far, money transfers from my bank account in China to the brokerage account in the US to fund my account go smoothly. To build my initial dividend stock portfolio, I have bought around $USD10,000 worth of stocks. The purpose of starting with such small amount was to figure basic things out. I am aware that dividends earnings will be very insignificant at the beginning.
- Countercyclicality of US and Chinese economies: It appears that the economic cycles in China and the US are more or less countercyclical. When interest rates in China are low to stimulate the economy, interest rates in the US are high to cool down the economy. With high interest rates, the stock market in the US will be going down as investors tend to move money away from stocks to bonds – bonds will have high yield because of high interest rates. So, when interest rates in China are low, I want to take the money out of deposits in Chinese banks and move to the US stock market to buy good quality companies at discounted prices.
- Moving money around the world: To do the above, I desire to have availability and freedom to move money around between different asset classes and different countries, specifically China, USA and European Union. When interest rates on deposits in China decrease to 2%, I want to be able to move money to buy US stocks within a few days to invest in dividend stocks that pay dividend yield of around 5% annually. Or, when interest on deposits in Poland increase to 7%, I want to be able to move money from China or from the US to Europe to maximize my returns from investments there.
- Benefiting from exchange rates: As my main earning power is in RMB while I will be using USD to purchase dividend stocks at NYSE and NASDAQ, I need to purchase foreign currency. When the USD exchange rate against Chinese Yuan drops below RMB6.5, I will start purchasing $USD using available cash. I will exchange even more RMB into USD when the exchange rate drops below RMB6.3.
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In summary, our purpose of saving money and the main aim of investing is to acquire the following four money-generating assets that earn stable, recurring and predictable Passive Income for our family.
Overall, our investments are diversified – belong to different asset classes, are independent from each other, based in different locations, hold in different currencies, at different financial institutions and going through different cycles. This helps with portfolio diversification – both important and necessary to manage risk.
