Salary independence is completely different from financial independence, says my co-founder David Kuo.
In his eyes, you can never get away from personal finance.
Whether retired or not, you still need to manage your money for your day-to-day needs.
What is possible, though, is salary independence.
Let’s face it …
… most of us work because we need a paycheck from our boss.
Salary independence helps you avoid relying on your monthly paycheck, giving you the freedom to choose the work you want to do, on your own terms.
To achieve salary independence, what you need is another source of income.
1. Dividends, dividends, dividends
You may have heard or seen David on CNA, CNBC, or MoneyFM, to name a few.
He may appear in different channels but when it comes to investing, his message is consistent.
David has made no secret of his love for dividends.
In fact, he goes as far as to avoid any stock which does not pay a dividend.
He is dead serious about this rule.
Case in point: it doesn’t matter even if Warren Buffett is the CEO. Berkshire Hathaway (NYSE: BRK.B), Buffett’s company, does not pay a dividend.
Therefore, David does not own the stock. Period.
The lesson here is about knowing what you want from your stocks.
If salary independence is what you seek, then dividends provide a path to rid yourself of the dependence on your monthly paycheck.
Instead of relying on a salary from your boss, your income can come from dividend stocks such as Singapore’s largest bank DBS Group (SGX: D05) or healthcare real estate investment trust (REIT) ParkwayLife REIT (SGX: C2PU).
There are plenty of choices, so you have to choose wisely.
2. The road to salary independence
Investing in dividend stocks is not a get-rich-quick scheme.
You certainly do not want to put all your eggs into one basket.
If the pandemic has taught us one thing, it is that unexpected events can happen and upset any business.
Instead, David likes to pick 20 stocks for each of his stock portfolios.
For instance, in Kuo’s Income Portfolio (KIP), David looks for businesses that own properties or assets. The rental income derived from these holdings supply the cash needed to pay unitholders’ dividends.
ParkwayLife REIT, which owns three hospitals in Singapore and 57 nursing homes in Japan, is a good example.
Meanwhile, for Malaysian Money Machine (MMM) and the Asian Consumer Portfolio (ACP), his mandate is to look for businesses which can tap on the boom in consumption.
Nestle Malaysia (KLSE: 4707), which has served Malaysians with consumer products for well over a century, fits the bill here.
Today, brands such as Maggi, KitKat, Nescafe, and Milo are household names recognised on both sides of the causeway.
While building a portfolio of income-producing stocks, you need a solid foundation.
The stocks above are a small sample of what you can build on.
Needless to say, you don’t want to overload on one stock or go heavy into speculative stocks.
That’s why David advocates building portfolios that can stand the test of time.
3. Built for the long term
The current retirement age, including re-employment, is 68.
Here’s the thing: if you reach the age of 65, statistics say you could live another 21 years; that’s the average.
Said another way: when you are ready to retire, you need to plan for living expenses to last at least another two decades.
Along these lines, the sustainability of your dividends should be a priority.
Speaking of longevity, the Asian Healthcare and Wellness Portfolio (AHP) is where we tap on businesses serving the healthcare needs of ageing nations across our region.
For instance, according to Health Minister Ong Ye Kung, Singapore is expected to reach “super-aged” status by 2026.
That’s when one out in five residents will turn 65 and above.
Solutions, such as the nursing homes owned by ParkwayLife REIT, will become a necessity for some.
These are the sort of businesses or REITs we will be seeking as our portfolio grows older alongside ourselves.
Get Smart: Invest for life
The above are just a fraction of the many lessons I have learnt from David, having the privilege of interacting with him for a decade.
Later this month, we will be meeting with members from David Kuo’s Income Portfolios with David taking centre stage.
We’ve just released a new Special FREE Report: “How to Make Your Child a Millionaire.” It’s a simple, no-nonsense guide for parents who care for their child’s financial future. You’ll also find 3 stocks (one even had a 55.8% jump in dividends) you can consider today to kickstart your child’s “piggy bank.” Click HERE to download now.
Disclosure: Chin Hui Leong owns shares of Berkshire Hathaway, DBS Group, and ParkwayLife REIT.
