One of the best ways to build passive income is to create a portfolio with solid dividend-paying stocks. Such a portfolio will help generate income and also has potential for stock price appreciation.
I have traded stocks for many years and tried to time the market. I have realized that it is a very difficult thing to do. There are many disadvantages for someone like me to time the market. Firstly, I don’t have the time to watch the market every second as market direction changes very fast. Secondly, I don’t always have access to all the news and resources as a large institution would have. Thirdly, fees add up and become very expensive over time. I can’t believe I’m saying this, but I think it is very difficult for the average person to beat the market. For those who would like to know why, read A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel.
Therefore, it’s much better to build a portfolio that can I don’t need to watch constantly and one that can weather the storms in the stock market. What that means is that I would like to have a portfolio that does not move as volatility as the stock market. It would be a less speculative stock portfolio. I could not expect a 100% return, but at the same time, a more stable portfolio will help mitigate risk and slowly rise in time. It’s akin to a turtle in a race that moves slowly but steadily towards the finish line. My goal is to set up this portfolio to produce passive income for life.
In summary, this portfolio should:
- Be stable and not be wildly affected by the daily movements of the stock market
- Have companies with strong balance sheet and positive earnings
- Produce dividends on a regular basis