How to establish a stable passive income source?
Savings and InvestmentsArticleNovember 17, 2023
According to the United Nation data, the global population surpassed 8 billion in 2022. It took only 11 years and a half month for the population to increase from 7 billion to 8 billion. This indicates an unstoppable trend of longevity. It is predicted that our average life expectancy will increase from 72.8 years in 2019 to 77.2 years in 2050. Do you have financial plans to maintain the standard of living during retirement for longer?
When facing an economic downturn and tight cash flow, how should investors conduct more robust asset management in a bear market?
During economic downturns, asset liquidity is crucial
Investors can allocate their investments in more flexible financial products and make financial arrangements in advance, such as self-made cash flow or retirement funds through dividend funds, which provides more choices in different economic cycles. Investment-linked assurance scheme (“ILAS”), which offers both investment and life insurance protection, has become a market highlight.
Create cash flow and building retirement funds
Currently, some ILAS products in the market offer investment options in dividend funds that support regular monthly dividends (this type of investment choice is generally linked to the regular dividend fund unit class of the relevant or reference fund). This helps investors to use the principal to generate their own cash flow or supplement retirement funds while seeking potential capital appreciation.
ILAS is suitable for different individuals, for examples:
1. Retirees who already have pension, savings or MPF
For those who are retired but lack a passive source of income, regular dividends can cover part of their living expenses after retirement.
2. Customers who have spare cash to invest
They can accept market price fluctuations and let funds grow through medium to long term investments.
3. Customers who aim to invest in long term
ILAS is broader than single-asset class investments and can diversify risks through medium to long term investments.
4. Customers who wish to achieve their financial goals through investment and look for life insurance protection
ILAS products provide life insurance protection, and can be used for asset investment and wealth inheritance.
The advantages of using dividend funds as an investment choice under ILAS
Besides suitable for different individuals, ILAS products and their dividend fund options also have the following advantages:
- Cash dividends can serve as a stable income source to support retirement expenses;
- Some products provide welcome bonus or loyalty bonus to enhance long-term investment income;
- They come with capital guarantee death benefit option, beneficiary(ies) can receive an insured amount equals to the premiums paid less any cash dividends paid and/or withdrawal amount;
- No medical examination is required if the sum insured amount does not exceed a certain amount.
Features of dividend fund options and Mutual fund options:
- Cash dividends paid in HKD can be directly transferred to a Hong Kong bank account through automatic transfer (cash dividends paid in foreign currencies other than HKD may be subject to exchange rate fluctuations at the time of distribution);
- Receive cash dividends without any handling fees;
- In times of market uncertainty, receiving cash dividends can increase fixed income and balance the market risk of invested funds, but cash dividends should not be regarded as guarantees, the policy account value decreases after payment of cash dividends, thereby reducing death benefits.
Related risks
What risks should be noted when selecting dividend funds under ILAS products?
- As a type of the investments, dividend funds carry risks. Investment options that offer regular monthly dividends do not guarantee a fixed payout or monthly dividends, including the frequency and amount of dividends;
- The net asset value per unit of the related funds may decrease immediately after the cash dividends are distributed, thereby affecting the price of the investment choice. As a result, the account value of ILAS policy will also decrease, reducing the death benefit payable to the beneficiary(ies).
In the continued uncertainty of the market, if your investment portfolio is underperforming or you need to plan your retirement strategy in advance, or looking for products that offers both investment and protection, you may consider ILAS dividend funds which diversify investments, create your own retirement fund and help establishing flexible cash flow.
Disclaimer
The information in this document is intended as a general summary for your reference only and does not constitute financial, investment or taxation advice or advice of whatsoever kind. You are recommended to seek professional advice if you find it necessary.
Source