World News – CA – Supplementing your pension with passive income

The stock market can be a great way to supplement your pension with passive income Here's how

CAMEROON MAGAZINE - GM30/10/20207 Mins read89 Views

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Karl Loomes | Thursday, October 29, 2020

Passive income has been a buzzword for a few years It can take many forms, from publishing a book to starting a business For me however, the stock market is one of the best and simpler ways to earn passive income

Passive income, as the name suggests, is an attempt to receive money with little to no continuous effort For many it is the dream – to have enough money so that they can quit their jobs and retire earlier Images of sitting on a sandy beach sipping champagne come to mind

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Of course, getting that level of passive income can be very difficult Starting a business or publishing a book may not be right for many And even if it is, there is no guarantee that it will be successful

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Although it is often not mentioned in the same context, millions of people have been earning passive income for decades – long before the term itself was used This passive income comes from investing

While fixed income bonds offer a guaranteed return (assuming they don’t default), with interest rates as low as they are now, that’s negligible The stock market, however , can offer much better returns thanks to dividends

First, a few caveats The stock market, of course, has a lot of price fluctuations If you buy a stock today for its dividend, tomorrow it could be worth half of its value if something really goes wrong. No dividend will compensate for this

Also, unlike bonds, a stock’s return is not guaranteed over a significant period.If a company makes less money, it can reduce or even suspend its dividend Fortunately, these risks can be mitigated by sound decisions and good advice

First, plan to invest for the long term If you can’t afford to lock in your money for five years or more, short term price swings may be too big for you Even the best companies will see their prices drop sometimes You need to be able to hold on when they do

To help you out, look primarily at large blue-chip stocks, preferably companies with strong brands Although this is not a guarantee, large, well-established companies are better able to weather financial turmoil They also tend to have more liquidity available to investors

To help you choose stocks, look for companies that have paid dividends consistently for, say, five years If a company has a dividend one year, none the next day, half again this year, it probably isn’t the right choice

You also want to look for a stock that has also increased its dividend over time Growth that beats inflation should be enough

The last consideration is in many ways the main one: yield While five-year bonds only pay a few percentage points, it’s quite easy to find solid stocks paying 5% or more

Ideally, look for stocks with a dividend yield between 3% and 6% Anything less is not worth it, and nothing more can be unsustainable

However, keep in mind that the yield of a dividend is based on the share price An oversold stock will mean an artificially inflated yield Always be on the lookout for these type of opportunities to increase your income passive at lower cost

And with so many large companies trading at prices that appear to be discounted prices, now may be the time for savvy investors to strike a bargain

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