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The best insurance to have in life.

Friday, July 18, 2014

"Income investors love them and growth investors rarely expect them, but just what are dividends?"

I have blogged about how having passive income that equals our earned income over time will give us the option to work because we want to and not because we have to.

I have also blogged about why there is a higher purpose to having passive income in our lives.

Personally, I find all these reasons very persuasive and make working towards having a passive income stream in my life worthwhile.

Over the years, I have made contact with people who are not convinced. One example:

"I make so little money. Can't save much. Invest so little, what is the point?"

Aigoo... (I have been watching K-drama).

Actually, having passive income is also really a form of insurance.

It is an insurance against the possibility of an economic recession and a pay cut.

It is an insurance against the possibility of retrenchment.

It is an insurance against the possibility of disability which restricts us from active employment.

Insurance is important because bad things happen in life. Passive income is important and it is not just something that is nice to have.

Passive income is the best insurance to have in life because it is able to free up the most valuable resource we have in life and that is the resource of time.

Gradually, as our passive income grows from a stream to a river, our earned income could become something less critical.

Over time, our earned income could become something that is only nice to have.

Related posts:
1. Building an income portfolio.
2. Passive income: A higher purpose.
3. Do the right things and transform our lives.
4. Millionaire or not, plan for retirement.
5. Win $14,000 to $19,200 a year?
6. Matthew Seah on financial freedom.


My 15HWW said...

Hi AK,

I share the same philosophy as you. =)

I hope that my passive income can keep on growing till the day it can potentially replace all my term insurances.

My 15HWW

AK71 said...

Hi 15HWW,

So, you are Keynes? Hahaha... OK. I only realise now. ;p

Well, I think it will be difficult for my passive income to ever grow to replace my term insurance which has $440K of coverage. To get $440K a year in passive income? Hmmm... I will have to dream the impossible dream. -.-"

The Sun said...

Apart from the pointers highlighted by you, building up our stream of passive income can also be viewed as part of our retirement planning process. I am sure not all of us will want to be in a position where we have to work and support ourselves till the day we die...

AK71 said...

Hi Sun,

Unfortunately, many do work past retirement age and still don't have enough to retire on. :(

Passive income is definitely a must for the average worker's retirement plan. If we have enough passive income to replace our earned income, we work because we want to and not because we have to. :)

Small Time Investor said...

Hi Ak71

Unfortunately , many would rather pay the compounded interest of credit card bills . Perhaps that is why savings is less , spending is more. An irony .

AK71 said...


You are right, of course. :)

"Once you get into debt, it’s hell to get out. Don’t let credit card debt carry over. You can’t get ahead paying eighteen percent."
Charlie Munger

It is 24% in Singapore. -.-"

pf said...

Hmmm....after trying to self study abt this investment thing and understand passive income, I come to conclusion that passive income is not very passive leh. E.g. for rental, still must choose tenant properly, for investment in stocks like reit and dividend stock...also must keep monitoring them. To term passive income as insurance is a bit too much. If I buy an insurance, I still can claim when I met the conditions to claim. If I make passive income, it is no guarantee. That said, it doesn't mean that I am against investment. :)

It all boils down to individual values in life. For me, I just don't believe that money, active or passive income, can be a form of insurance. My religion taught me otherwise. :)

李白puts it across very nicely for me, covering the few impt angles (although not all) I thought about: 天生我材必有用, 千金散尽还复來。

AK71 said...

Hi pf,


Many things are all a matter of perspective. We could be those proverbial blind men touching different parts of an elephant. ;p

Passivity is a matter of degree. Some forms of income are more passive than others and, for me, I rather have passive income than not. It is passive relative to earned income. :)

Of course, whether we choose to embrace a concept and the perspective which we have on it could depend on our religion too, if any, which could determine our values in life. We make our own choices. ;)

My 15HWW said...

Hi AK,

I guess I got it wrong. I probably mean having the assets to replace the term insurance.

For your case, I am pretty sure you already exceed the $440K. =)

Singapore Man of Leisure said...

I wanted to write something cryptic with a bit of poke.

After reading pf, I decide to go back to wallowing in the mud ;)

Anonymous said...

Hi Ak, the best insurance is the mindset of contentment. People also thought contented people are underachieving or lazy. Actually, there is no conflict if a person is ambition and yet contented. Anyone who knows 苏式,of Song Dynasty will know what I am talking about.

Btw, I got a qn to ask u. When u invest using SRS, and dividends is given, the dividends go into bank account or back to SRS account ???

AK71 said...

Hi 15HWW,

Oh, total assets above $440K? I am sure you have that too. Your flat is already half a million dollars or more in value. OK, I am just being perverse. You are probably referring to liquid assets, right? ;)

I don't know how much your term insurance coverage is worth? $1 million? I think to have liquid assets of $1 million or more is probably enough for most average households. A good number to work towards. :)

AK71 said...


Aiyoh, how could you deprive me the pleasure of reading your cryptic comment with a bit of a poke? That is just cruel! :(

Now, telling me that you are depriving me of this pleasure is adding more cruelty to cruelty. :_(

I hope your mud bath dries up in this hot weather. *snigger*

AK71 said...

Hi Mike,

The easy one first, the money goes into the SRS account. :)

Contentment is a state of the mind and the concept of "enough" goes hand in hand with this.

So, can we be contented with having no money at all, for example? Yes, if we enter a monastic order, I guess. Er, theoretically lah.

"I am a modern day monk and need modern day comforts (including a BMW, condo and horses for pets)," Reverend Ming Yi. -.-"

I wouldn't say contentment is the best insurance but our level of contentment will let us know how much insurance we need. :)

Many could improve their lives by simply making a Three point turn.. ;)

Anonymous said...

Hihi AK,

Contentment at is finest cover not just the money and material aspects. It filled the heart with kindness and happiness.

No money yet contented. That's great isn't it. Mother Teresa is a heroine in my eyes, filled with so much compassion and contentment.

For mortals like us, we need some level of material comfort. Contentment is also a protection against greed, depression and maybe even evil thoughts.

Life is a gift, even when unpleasant

AK71 said...

Hi Mike,

You have reached a level of ZEN that I might never be able to reach. Hmmm... Never say never though. ;)

My 15HWW said...

Hi AK,

You think too highly of me. Even including the flat (take away home loan), my individual net worth is at most about $250K.

But you are right that I am looking at $1 million for the both of us before we terminate the term insurances. Anyway, the purpose of term insurance is for our future dependents and there's none at the moment. =p

AK71 said...

Hi 15HWW,

Yup, term insurance is for our dependents. If we have none, we don't need it. :)

Actually, if there is no plan to have children, financially, it would be less demanding.

Don't worry. I won't go: "Aiyoh, when are you going to have children har?"

I shall wait till Chinese New Year. LOL. ;p

pf said...

Oh dear, did I deprive us all from the mysterious message of SMOL? ;P

Anyway, I totally believe in Maslow. Got to have money to cover all the basic needs. Just not to the level that money gives me security.

Another angle from Henry Ford -
If money is your hope for independence, you will never have it. The only real security that a man can have in this world is a reserve of knowledge, experience and ability.

Although I beg to defer abt his only real security...which sounds like he believe in only himself. :)

AK71 said...

Hi pf,

As for me, Charlie Munger says it well when he said:

"Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence. I desperately wanted it."

I don't want to have to rely on an earned income for the rest of my life.

However, I do see your point. Fiat money is, after all, a human construct.

I actually wrote a piece on this before: How to be truly "rich" when the world collapses?

AK71 said...

Ana said...
Hi AK,
I must thank you and your blog.
After reading your blog, I started to build up my portfolio in 2009. My dividend income is not even half of what you have, but it is a comfortable amount (as long as I don't live extravagantly).
I had a baby last year, and at the same time, encountered some problems at work.
To cut the story short, I had to leave my job (I wished they retrenched me, but the company preferred to use this type of method).
But because of the portfolio I built up in the last few years, it is sufficient for the family, even with the baby. And because we live rather simple lives, it is also ok to go single income and still send the baby to childcare so that I can have a breather during the day.
Thanks AK.

AK said...
Hi Ana,
You have experienced for yourself what is the best insurance to have in life. I am glad. :)

AK71 said...

Eric Kua said...
Ak, for ppl with a large cash horde, just H&S enough?

AK said...
Eric, for people with enough cash to last them a few generations and if they are not concerned with wealth preservation, they don't even need H&S.   For the rest of us, having a strong flow of passive income is more important than having a large cash horde as we should really be moving towards self insurance.

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