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Three reasons why income investing works

Three reasons why income investing works

  • 21 July 2023
  • By OCBC Wealth Management
  • 10 mins read

Key Takeaways:

  • US interest rates have likely peaked, lock in attractive yields today.
  • Investing for income using quality assets will make your portfolio more resilient.
  • Investing for passive income gives you flexibility in where to reinvest your income later on.

Building a stream of passive income is a goal for many investors.

Being able to generate multiple streams of passive income makes your investment portfolio more resilient, especially if you expect the road ahead to be bumpy.

Here are three reasons why income investing should be a strategy for 2024.

1. Lock in attractive yields today

High interest rates in the major western economies are starting to see success in bringing inflation down. While US inflation1 rose by 3.2% year-on-year in November 2023, inflation actually fell by 0.1% when measured month-on-month.

Central banks like the US Federal Reserve can thus afford to slow or even stop their interest rate hikes soon.

For investors, this means that interest rates and bond yields have likely peaked (Figure 1) and it is time to lock in these attractive yields in income-generating assets before they drop.

Figure 1. Investors should lock in yields now as short-term US interest rates have likely peaked

Source: Bloomberg, as at 22 December 2023

2. Defensive investing

Investing for income can make your portfolio more resilient. Government bonds and investment grade bonds are an important building block in income investing, tend to be more defensive than equities and thus makes your portfolio more defensive if a recession hits.

If a company pays stable dividends every year, it is an indication of financial stability, which reflects the quality of the business and management’s confidence and discipline in paying dividends to shareholders. This financial stability is an indication that the company is better positioned to weather tough times (Figure 2).

Figure 2. Dividend investing is an indication of greater financial stability and can contribute to better performance

Source: Bloomberg, from 31 December 2003 to 31 December 2023

3. Cash is king

Investing for passive income creates a continuous cashflow for you. This gives you flexibility to:

  • reinvest into your portfolio to generate more passive income in future,
  • invest into an investment opportunity that has just opened,
  • keep it as “dry powder” to prepare for future investment opportunities,
  • use it for your retirement income, or
  • use part of it for an occasional self-indulgence.

Do note that for your portfolio to grow meaningfully over the long term, you will need to re-invest most of your dividends to let the power of compounding work its magic (Figure 3).

Figure 3. An income portfolio grows more meaningfully over the long-term with dividends reinvested

Source: Bloomberg, from 31 December 2003 to 31 December 2023

Income investing: A brief explainer

Income investing refers to investing with the objective of generating passive income on a monthly, quarterly or yearly basis from the investments you choose.

You can invest to generate passive income by investing in any or a combination of the following assets:

  • Fixed income / Bonds
  • Dividend-paying stocks
  • Property rental / real estate investment trusts (REITs)
  • Infrastructure assets, such as toll roads, power grids
  • Unit trusts that aim to generate a mixture of growth and income

Do note that there are still risks associated with income investing. Typically, the higher the yield, the higher the risk.

Current opportunities in income investing

Cautious investors can consider short-dated bonds (<2yrs) to lock in attractive yields and hold to maturity.

Opportunistic investors can complement short-dated bonds with longer-dated bonds (>7yrs) which offer greater potential for long-term price appreciation but with potentially higher volatility.

Investors can also consider investing in Singapore REITs (S-REITs) which have exposure to the hospitality, industrial, data centre and healthcare sectors, as well as S-REITs holding Japanese properties.

Here are some income ideas you can explore today.

1. PIMCO GIS Income Fund E

Designed for investors who seek steady income with a secondary goal of capital appreciation, the fund taps into the global bond market with an overall average investment grade credit rating of AA-2. This fund shines especially in its consistent track record during volatile periods, with a historical annualized dividend yield of up to 6.32% p.a.2.

2. Amundi Funds Asia Income ESG Bond

An OCBC Exclusive fixed income fund that aims to provide regular income and invests in Asian markets with a focus on ESG. Start from just S$100/month.

3. RoboInvest Income Portfolio

Earn a projected dividend payout of 5.48% p.a.3 with a well-diversified portfolio including bonds, REITs and equity ETFs. The portfolio also actively allocates to, and within, different asset classes and geographies based on the team’s fundamental views. Rebalancing is performed on a quarterly basis to ensure optimal risk exposure.


1US inflation as measured by the Personal Consumption Expenditures Index (PCE).

2Bloomberg, as of end-December 2023. Past performance figures do not reflect future performance.

3Bloomberg, as of end-December 2023. This projected dividend yield is calculated using the average dividend yield of the portfolio in the last 6 months and is meant for illustrative purposes only. Past performance of the portfolio is not indicative of future performance.

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