The Five Ways To Generate Passive Income— (2) Liquid Investment/Equities
Paper asset offers great investment opportunities. It is called paper investment because you receive contractual documents in exchange for your money. The document shows the volume, price and value of your shares. Paper investment include bonds, bank deposits, treasury bills, mutual fund etc. People are more conversant with shares or stocks of company as an investment option for them.
What are shares?
Shares are units of ownership which gives the holder some rights, privileges and benefits. Many investors have seen or operated shares as a get-rich-quick answer to their financial plight and in the process lost huge sum of money. The operators also, have not educated or given enough information as to the dos and don’ts of shares. Many investors have also given 100% reliance on their broker or financial advisers to do everything for them. They parted their hard earned or retirement money to vendors to regret later in life. However, shares investment is one of the five ways to generate passive income if properly guided with the right information.
Benefits of Shares
–It is a quiet investment. Paper does not talk
–Dividend Earnings. This is part of return on investment of your units of shares (ROI)
–Bonus Issues. Free units of shares based on your initial investment. I was in a workshop some years back and one of the participant told me the car he brought for that workshop was from the sale of the bonus he sold from a particular company. (Just one company)
–Right Issue. Opportunity to have more units of shares but not compulsory. Companies give priority to their shareholders to own more shares before selling to the public. This is one of the ways capitalists mop up shares of companies to have major stake
–Asset Ownership. Shares are salient assets. The second richest man in the world today (Warren Buffet) is valued based on his shares in companies across the globe.
-Savings. Some of your money can become inaccessible through purchase of units of shares. Savings in shares, avail you the opportunity to put your money in assets that have the potential of high yield. You could save N1,000,000 in the purchase of units of shares and when you need the money, the sales of the units of shares could give you N1,500,000 or N2,000,000. Mind you, it could also give you less than the value of your N1,000,000 depending on the market forces as at the time you needed your money. The decision is yours to either wait or cash out.
–Capital Appreciation. You could buy a particular stock at a particular price and it could appreciate due to the laws of demand and supply. Buying at N5.00 and selling at N10.00
There are other benefits of shares but let me stop at just this seven for now.
How Do You Generate Passive Income From Shares?
To generate passive or residual income from shares, you must make up your mind never to trade with you shares (buying and selling). Also you must be ready to invest huge sum of money.
Take for instance, if N1,000,000 is what financial freedom means to you yearly and you want to buy the shares of First Bank of Nigeria PLC selling for N10:00 today and the last dividend they gave was N1:10 to a share. It means you have to invest N10million today to be able to have one million units of First Bank shares. First Bank is over 100 years in Nigeria. Imagine the families in Nigeria that have held on to their First Bank Shares since then. Let’s assume the bank has been declaring bonuses and dividends every year since then. It means those families will be smartly rich depending on their units of shares.
Now back to our calculation. Let’s assume after you have gotten your one million units of First Bank today, First bank declares N1.20 dividend per units of shares held as at December 31st, 2016, or first quarter of 2017 before they close their books. It means your dividend for that financial year will be N1,200,000 minus 10% withholding tax which is N120,000 and your net dividend will be N1,080,000. The net figure means you achieved your N1,000,000 financial freedom target.
You will agree with me that, shares investment is also capital intensive. It requires making the right investment decisions. It demands lot of patience from the investors because of the years involved before you make your invested money back. The risk involved is also volatile.
It is not possible for everybody to make their money from shares investment. There is a better way that intelligent people can leverage on. The focus is; FIVE (5) WAYS TO GENERATE PASSIVE INCOME not five (5) ways to make money. The focus is freedom not security.
Are there other legitimate ways to generate passive income? Yes! Watch out for the next ways to generate residual income. This is just number two out of five.
Matthew Abolurin is the Principal Consultant/CEO of Pep Access Ltd, a consulting outfit responsible for Business conception, actualization and growth, Sales and Marketing Training and HR Management. Matthew Abolurin is the President of Transformation Network International, a multifaceted Network where wisdom is given to create a life of Purpose, Passion, Peace and Prosperity.