How To Invest For Income With A Bond Portfolio

    Imagine being able to earn income without spending much time or effort. That’s passive income for you – your money making more money for you 24/7, even when you sleep!

    Anyone can invest for income. You can build a passive income portfolio using dividend stocks, bonds and real estate investment trusts (REITs). What to invest in ultimately depends on the degree of risk you’re comfortable with, and the income you require. 

    A closer look at fixed income / bonds

    Many investors are familiar with dividend stocks and REITs. But not many realise that bonds can provide attractive yields too. It all depends on the type of bonds used. Broadly speaking, bonds can be categorised as government or corporate bonds, and are rated on their credit risks.

    Investment grade bonds (rated ‘BBB’ or higher) typically have a low risk of default. High-yield bonds (rated below ‘BBB’) have a higher default risk compared to investment grade bonds, and so pay a higher yield to compensate investors. 

    Geography matters too. Emerging market bonds typically offer more attractive yields compared to bonds from developed markets. Yet, they’ve historically had default rates similar to developed markets corporate bonds.

    Source: PIMCO, Moody’s, as of May 2020

    Syfe Select Global Income: A high yield portfolio 

    As you can guess, it’s possible to build an attractive income portfolio using a mix of different bond types. For instance, the Syfe Select Global Income portfolio has exposure to both investment grade and high yield corporate and government bonds. 

    The allocation to government bonds (32%) helps provide stability during times of volatility, while corporate bonds (68%) help generate better returns. Additionally, the portfolio’s significant allocation (55.2%) to emerging market bonds helps boost portfolio yield and improve risk-adjusted returns.

    The Syfe Select Global Income portfolio targets a gross dividend yield of 4.25% per annum. These include:

    • iShares JP Morgan USD Emerging Markets Bond ETF (EMB)
    • iShares JP Morgan EM Corporate Bond ETF (CEMB)
    • iShares iBoxx High Yield Corporate Bond ETF (HYG)
    • iShares Fallen Angels USD Bond ETF (FALN)

    Delve into the details of each bond ETF here.

    Can you earn $1,000 / month with Syfe Select Global Income?

    To earn passive income of $1,000 each month, assuming average dividend yield of 4.25% every year, you’ll need a total investment of $282,353. 

    If that sounds out of reach at this moment, don’t fret. There are ways you can slowly build your passive income portfolio to that amount. The most popular option would be through dollar cost averaging, where you invest a fixed sum every month over a period of time.

    Here’s an example of how you can accumulate $282,353 in your Global Income portfolio, which would then give you $1,000 in passive income each month, assuming all dividends are reinvested. 

    *Calculations assume no capital appreciation and a constant 4.25% dividend yield each year, reinvested.

    Let’s say you’re 40 this year. You start your Global Income portfolio with an investment of $20,000. Next, you set up a recurring transfer of $500 each month to your portfolio. By the time you turn 63, your portfolio value would have grown to $287,286, which would provide you with slightly more than $1,000 each month to boost your retirement nest egg.

    At that point, no more investments need to be made. You can also choose to stop reinvesting your dividends and live on the passive income generated as you enjoy your golden years.

    If you find the duration of 23 years too long, you could either start with a higher investment amount, or increase your monthly contributions. All things equal, bumping up your monthly transfer to $1,000 would mean that you can start enjoying your desired passive income in 15 years. 

    Kickstart your passive income journey 

    Investing in the Syfe Select Global Income portfolio takes less than 10 minutes. If you’re new to Syfe, create your account in three minutes using Singpass. Thereafter, you can use PayNow or Internet banking to make your first transfer to your Global Income portfolio.

    If you’re an existing Syfe customer, simply click on ‘Add New’ to add the Global Income portfolio to your investments.

    As with all Syfe Select portfolios, there’s no minimum investment amount and no brokerage fees. Your dividends are automatically reinvested for you at no extra charge, and you have full flexibility to withdraw your funds anytime. 

    This article is for information purposes and does not constitute financial advice. This is not an offer, recommendation or solicitation to buy or sell any products. This advertisement has not been reviewed by the Monetary Authority of Singapore.