"To generate enough passive income to live off on and still have money left for investment. Make my money work harder for me."
In order to fulfill my investment aim. I decided to use the power of compounding as Albert Einstein once said that it is the most powerful force on Earth. If you think the effect of compound interest is great, then compound dividends is like "compound interest on steroids". Without further ado, I shall share 2 compound dividends plans below.
*Calculations are done based on an annual dividend yield of 7%.
Version 1 is a pure dividend re-investment plan. I will only use the dividends received every year to re-invest in dividend stocks. I do not need to fork out a single cent from my pockets. Therefore I can maintain a larger cash buffer. However, this process is rather slow. I will only reach S$12K in annual passive income at 36 years old!
|Year||Capital (S$)||Capital + Dividends (S$)||Dividends + Capital Injections (S$)|
*Calculations are done based on an annual dividend yield of 7% plus capital injections.
Version 2 is an accelerated form of the first. I will combine the dividends received with my own funds in order to reach S$15K for re-investment. This will speed up the compounding effect. By the end of 2016, I will achieve a dividend portfolio size of S$180K, at an age of 33 years old. However, this version requires me to be more disciplined in my spending and more aggressive in my savings. Secondly, I will have a smaller cash buffer.
Version 1 is slow but safe. Version 2 is faster but riskier. I am leaning slightly towards Version 2 because I do not own a car or property, therefore no loans and mortgages to service. I believe I am not a spendthrift either. Therefore, spare cash will be available for investment. Of course, another way is to find higher yielding stocks. However, it is difficult to find blue chips that are yielding consistently above 7%, except Starhub.
So, if you are in my shoes, which version will you choose? Or you have a better plan than my ones? Please comment below. ^^