With inflation at multi-year highs, investors are on the hunt for regular streams of passive income to supplement their take-home pay.
The most common choices are dividends from stocks and yield from fixed-income bonds, while some will swear on real estate and seek out rental income or try to hunt down inflation hedges.
But there is an inherent risk that people may not initially see.
There are nuances behind the passive income strategies that require further due diligence.
Not all investments that seem to provide an inflation hedge can deliver it in this environment of both slowing growth and high inflation.
Passive income portfolio strategies that suit others may not suit you. Investing is a deeply personal endeavour.
Hunt for passive income
Core inflation in Singapore in June rose to 4.4 per cent, breaching 4 per cent for the first time since the end of 2008.
Naturally, our first instinct is to find ways to protect and preserve our purchasing power and investors are already on the prowl for more income.
However, we are in a unique situation of not only higher inflation but also slowing global growth.
The International Monetary Fund expects global growth to further slow from 3.2 per cent this year to 2.9 per cent next year.
China’s economic slowdown is on investors’ minds while scorching inflation has been driven by cost pressures resulting from the persistent spread of Covid-19 around the world and the Russia-Ukraine war.
With recession looming, simple inflation protection strategies may not always work.
For example, high-flying commodities did well in the early stages of inflation spiking but growth concerns have seen prices collapse in recent months.