投資新手必學！小資本都可以躺平賺錢！ [ENG+中文CC]

Summary

In this video, AhJu, a former iBank professional investor, shares accessible methods to generate passive income, even with just 8,000 HKD. He explains key considerations for passive income investments, such as reliability, dividend frequency, and total return. He covers options like ETFs, bonds, and covered call ETFs, detailing their benefits and risks. AhJu emphasizes diversification, low fees, and the importance of understanding market risks. He also provides tips on using platforms like Interactive Brokers for bond investments and highlights his Patreon for more market insights.

Takeaways

• 💡 Creating passive income is accessible to everyone, not just the wealthy, and can be initiated with as little as 8,000 HKD.
• 🏦 AhJu, with over a decade of experience as a professional investor, shares insights on personal finance and investing strategies.
• 💼 When investing for passive income, consider the reliability of payouts, frequency of dividends, and total return including capital appreciation.
• 📊 ETFs like Vanguard High Dividend Yield ETF offer a diversified investment with low entry costs and have shown consistent dividend increases over time.
• 🌐 US-listed ETFs are advantageous due to low or no commission fees from some brokers, making them accessible for small-scale investors.
• 💹 The annual management fee for Vanguard ETFs is significantly lower than many Hong Kong MPF funds, enhancing the value of passive income.
• 📈 Companies within the ETFs mentioned retain a portion of their earnings, which contributes to capital appreciation and increases the total return on investment.
• 🌱 Despite a lower initial dividend yield, the potential for growth and sustainability of dividends makes ETFs an attractive option for long-term passive income.
• 💵 US withholding tax can reduce the effective dividend yield, suggesting alternative investments like European UCITS ETFs to avoid such tax deductions.
• 📊 The choice between different types of bonds depends on the desired term, with short-term bonds currently offering higher yields than long-term ones.
• 🔐 U.S. Treasuries are considered a safe investment for passive income, with yields locked in at the time of purchase, unaffected by market rate fluctuations.

Q & A

What is the main purpose of the video?

The main purpose of the video is to explain accessible methods to create passive income using a small amount of savings, specifically starting with 8,000 HKD.

What are the three factors to consider when investing in an asset for passive income?

The three factors to consider are the reliability of the passive income, the frequency of dividend payments, and the total return including both dividends and capital appreciation.

Why are U.S. bonds considered reliable for passive income?

U.S. bonds are considered reliable for passive income because the return is fixed at the time of purchase, ensuring predictable payouts.

How does the reliability of dividends from stocks compare to bonds?

Dividends from stocks can be less reliable than bonds because they can change with the company's business performance, whereas bond returns are fixed.

What is an Exchange-Traded Fund (ETF) and why is it recommended for passive income?

An ETF is a fund that primarily invests in a basket of assets, such as stocks. It is recommended for passive income because it helps diversify investments, reducing individual stock risks, and can have low management fees.

What is the Vanguard High Dividend Yield ETF and how does it work?

The Vanguard High Dividend Yield ETF is an ETF that invests in high-dividend-yielding large companies listed in the United States. It provides passive income through dividends and offers diversification with a low annual management fee.

What is the significance of the dividend yield of the Vanguard High Dividend Yield ETF?

The dividend yield of the Vanguard High Dividend Yield ETF is 2.8%, which is considered low, but it has been increasing year over year, indicating potential for growth and sustainability.

How does the Vanguard All-World High Dividend Yield UCITS ETF differ from the Vanguard High Dividend Yield ETF?

The Vanguard All-World High Dividend Yield UCITS ETF invests in global stocks, unlike the Vanguard High Dividend Yield ETF which focuses on U.S. companies. It is not subject to U.S. withholding tax but has higher management fees and lower liquidity.

What are the advantages of investing in U.S. Treasury bonds for passive income?

U.S. Treasury bonds offer a fixed yield, are considered very safe, and currently have higher yields than a few years ago. Additionally, interest paid on bonds is not taxed, allowing investors to receive the full yield.

What is a covered call ETF and how does it provide passive income?

A covered call ETF is a fund that tracks an index and also sells call options, providing additional income from the premiums. This income is distributed back to shareholders, offering a higher and more frequent dividend yield, but at the cost of some potential upside.

What are the risks associated with covered call ETFs that track individual stocks?

Covered call ETFs that track individual stocks carry higher risks because while the gains are capped, the losses when the stock falls are borne entirely by the investor.

Outlines

00:00

💸 Introduction to Creating Passive Income

In this video, AhJu, a former iBank professional investor, shares insights on creating passive income even with limited savings, such as HKD 8,000. He emphasizes the importance of considering the reliability of income, frequency of payouts, and total return when investing in assets for passive income. AhJu highlights the differences between the predictability of U.S. bonds and the variable nature of stock dividends, noting that stability and cash flow are key factors to consider.

05:00

📈 Exploring ETFs for Passive Income

AhJu discusses the benefits of investing in Exchange-Traded Funds (ETFs), focusing on the Vanguard High Dividend Yield ETF (VYM). This ETF, which invests in high-dividend-yielding large companies in the U.S., offers diversification and low fees, making it accessible for investors with limited funds. He explains that despite the seemingly low 2.8% dividend yield, the ETF's historical performance and the companies' profitability suggest sustainable dividends with potential for growth.

10:02

🌍 Considering Global ETFs and Tax Implications

To avoid U.S. withholding tax on dividends, AhJu suggests considering European UCITS ETFs, like the Vanguard All-World High Dividend Yield UCITS ETF (VHYL). Though it invests globally and avoids U.S. taxes, VHYL has higher management fees and lower liquidity compared to VYM. He points out the trade-offs between different ETFs and emphasizes the importance of understanding market risks and the potential impact of market corrections on passive income.

💰 Benefits of Bonds for Passive Income

AhJu explains the advantages of investing in bonds, particularly U.S. Treasury bonds, for those seeking stable and secure passive income. With current yields around 5.3%, bonds offer higher returns than in previous years and are safer than stocks. He describes how bond yields are locked in at purchase and highlights the importance of understanding the yield curve when choosing bond durations. He also discusses the minimal taxation on bond interest for Hong Kong investors and the relative safety of U.S. Treasuries.

📊 Navigating the Yield Curve and Bond Choices

In this section, AhJu elaborates on the yield curve and how it affects the choice between short-term and long-term bonds. He explains that while short-term bonds may offer higher yields now, future yields are uncertain. The choice depends on individual financial needs and market conditions. He reassures investors that U.S. Treasuries are a safe investment for passive income and explains the logistical aspects of bond investing, including the potential need to sell bonds before maturity.

📆 Maximizing Returns with Covered Call ETFs

AhJu introduces covered call ETFs as an alternative for higher and more frequent passive income payouts. These ETFs sell call options to generate premiums, which are distributed as dividends. He uses XYLD, which tracks the S&P 500, as an example, noting its high but variable dividend yield. He highlights the trade-off between higher dividend yields and potential capital appreciation, and advises investors to consider their total return when evaluating these ETFs.

🔍 Evaluating Covered Call ETFs and Risks

AhJu continues discussing covered call ETFs, mentioning new variations that track individual stocks, such as NVDY, which yielded a high dividend due to the volatility of NVIDIA stock. He cautions that these ETFs carry higher risks, as potential gains are capped while losses are fully borne by the investor. He directs viewers to another video for a more detailed explanation of the financial risks and suitability of covered call ETFs for long-term investment.

🎥 Conclusion and Additional Resources

In the conclusion, AhJu invites viewers to join his Patreon for more in-depth market analysis and investment advice from his professional experience. He mentions a free 7-day trial and provides links to additional videos and resources for those interested in learning more about investing, stock markets, and passive income strategies.

Keywords

💡Passive Income

Passive income refers to earnings derived from a source that requires minimal effort to maintain. In the context of the video, it is a financial strategy aimed at alleviating financial stress and is not exclusive to the wealthy. The script discusses various methods to generate this type of income, such as investing in ETFs and bonds, which can provide a steady stream of earnings without constant active management.

💡Reliability

Reliability, in this context, pertains to the consistency and dependability of the income generated from an investment. The video emphasizes the importance of considering the reliability of passive income, contrasting fixed returns from U.S. bonds with the variable dividends from stocks, which can fluctuate based on a company's performance.

💡Dividends

Dividends are payments made by a corporation to its shareholders, usually derived from the company's profits. The script discusses how dividends can be a source of passive income, but their frequency and amount can vary. For instance, some assets pay dividends monthly, while others may pay every three or six months.

💡Total Return

Total return is a measure of an investment's performance that includes both capital gains and dividends. The video explains that when considering passive income, it's crucial to look beyond just dividends and consider the overall return, including potential capital appreciation of the investment.

💡Exchange-Traded Fund (ETF)

An ETF is a type of investment fund and exchange-traded product, traded on stock exchanges much like individual stocks. The video mentions ETFs as a way to generate passive income, highlighting their low entry cost, diversification benefits, and the example of Vanguard High Dividend Yield ETF.

💡Diversification

Diversification is an investment strategy that involves spreading investments across various financial instruments to manage risk. The script explains that ETFs help achieve diversification by allowing investors to own a small piece of many different companies, reducing the risk associated with individual stock performance.

💡Vanguard ETFs

Vanguard ETFs are a type of investment product offered by Vanguard Group, known for their low-cost investment options. The video specifically mentions Vanguard ETFs for their low annual management fees, making them an attractive option for passive income generation.

💡U.S. Treasury Bonds

U.S. Treasury bonds are debt securities issued by the United States government to finance its spending. The video discusses these bonds as a reliable source of passive income, highlighting their high yield compared to previous years and the safety associated with the U.S. government's backing.

💡Yield

Yield in finance refers to the income generated on an investment relative to its total value. The script uses the term to describe the returns on various investments, such as ETFs and bonds, and how these yields can affect the total return on an investment.

💡Covered Call ETF

A covered call ETF is an investment fund that generates income by selling call options on the underlying stocks it holds. The video explains that these ETFs can provide high and frequent dividend payments, but at the cost of potential capital gains, as they involve giving up some upside in exchange for the option premiums.

💡Liquidity

Liquidity refers to the ease with which an asset can be bought or sold in the market without affecting its price. The script discusses the liquidity of different ETFs, noting that the Vanguard All-World High Dividend Yield UCITS ETF has lower liquidity compared to the U.S.-listed Vanguard ETF, which could affect the ease of trading large volumes.

Highlights

Creating passive income to alleviate financial stress is not just for the wealthy.

Even with a small amount saved, like 8,000 HKD, passive income can be generated.

The reliability of passive income payouts is crucial, with U.S. bonds offering very reliable returns.

Dividend payments from stocks can fluctuate based on the company's performance, making them less reliable.

Frequency of dividend payments is important for cash flow management.

Total return includes both dividends and capital appreciation.

Exchange-Traded Funds (ETFs) like the Vanguard High Dividend Yield ETF offer diversification and lower fees.

Vanguard ETFs have low annual management fees, such as 0.06% for the mentioned ETF.

The mentioned ETF distributes dividends quarterly and has shown a steady increase in payouts over 14 years.

To avoid U.S. withholding tax on dividends, consider European UCITS ETFs like the Vanguard All-World High Dividend Yield UCITS ETF.

Bonds, especially U.S. Treasury bonds, offer a safer and more reliable source of passive income compared to stocks.

U.S. Treasury bonds currently yield around 5.3%, and their interest is not taxed in Hong Kong.

Covered call ETFs provide higher and more frequent dividend payouts by selling call options.

XYLD, a covered call ETF, yields nearly 10% in dividends over the last ten months but comes with capped upside potential.

Different covered call ETFs track various indexes or individual stocks, offering varying levels of risk and return.

Transcripts

Creating passive income to alleviate financial stress in everyday life

is not just for the wealthy

Even if you've only saved a little, we can still create passive income

This video will explain some accessible methods to make money with money

8,000 hkd is enough

From 3% to 50% options are available

If it's your first time to this channel

I, AhJu had been in an iBank as a professional investor for over a decade

On this channel, I share my views on the market and investing

and use my experience to share things you can't learn from books

If you're interested in personal finance, let’s subscribe to my channel

First, let's discuss when we invest in an asset to generate passive income

what should we consider?

First, the reliability of the passive income that is paid to you

For example, buying U.S. bonds for passive income offers very reliable payouts

because the return is fixed at the time of purchase

so you know when and how much you'll receive

But it's different with stocks

Dividends can change with the company's business

More profits might mean higher dividends, less profits might mean lower dividends

So this type of passive income is less reliable

If you rely on it for daily expenses, it's less stable

The second point is how frequently the dividends are paid

Some assets pay monthly, some every 3 or 6 months

If the cash flow is important to you, then you should consider this factor

And thirdly is the total return

which means, beyond just dividends, we should also consider capital appreciation

If the yield is high, even if it's 20%

but if the capital, that is the stock price drops by 30%

then the total return is still a loss

How do you know if the capital value will rise or fall?

You have to look at fundamental factors

Having explained the factors to consider

next, let's look at passive income assets you can buy with 8,000 hkd

starting with the ones that offer lower dividends

First, is the Exchange-Traded Fund (ETF), such as this Vanguard High Dividend Yield ETF

This fund primarily invests in high-dividend-yielding large companies

listed in the United States

As a US-listed ETF, its trading is similar to trading US stocks

which means the minimum investment is one share, or $119 USD

approximately 900 Hong Kong dollars

making it possible to start investing with less than 1,000 hkd, and earn passive income

Additionally, when trading US stocks, especially ETFs

some brokers do not charge commissions

thus, the cost of entry is very low, making it accessible for anyone to invest

Why do I choose ETFs? Because they help diversify investments

Buying one fund is like buying shares in 500 different stocks

This way, I don't have to worry about individual risks

like if one company goes bankrupt, or another faces issues

because even if they do so, they are just one of the 500

It won't affect the overall performance of the fund much

For long-term investments, diversification is very important

And why do I choose Vanguard ETFs? Because they have low fees

The annual management fee for this ETF is just 0.06%

For comparison, many of Hong Kong's MPF funds have fees exceeding 0.3%

making this ETF five times cheaper

Next, let's look at the stocks this fund holds

Its largest holdings include Broadcom, JP Morgan, Exxon Mobil, P&G

and Johnson & Johnson

All are well-established American companies

Regarding passive income, how much does it yield?

Looking back at its dividend record, it distributes dividends quarterly

which means four times a year

The most recent payout in March was 0.66

Before that it was 1.10 in December, and over 0.70 for September in last year

In total, over the last 12 months, it distributed 3.40

Compared to the current market price of the ETF at 119

that equals a dividend yield of 2.8%

Only a 2.8% passive income? That seems quite low

Wait until I finish explaining

Let's consider whether this fund can maintain these dividend payouts

If we look back at the last 14 years of records

the annual dividends paid by this ETF are represented by the orange line

Shown on the left hand side, it paid $1.30 in 2010 and up to $2.20 in 2016

and in the most recent 12 months, it paid $3.40

So, its dividends have increased year over year, almost continuously for 14 years

It's not surprising because the companies it invests in, like JP Morgan

over these 14 years have consistently raised their dividends

starting from $0.20 in 2010 to $4.40 this year

But can these dividends be sustained?

Or are these companies simply tearing flesh from their own bodies to pay them out?

Meaning, there are dividends but no increase in stock value

Let's look at this fund and its larger holdings

like JPMorgan

which distributed a dividend of $4.40 in the last year

Where did this money come from?

If we look back at this bank's performance

its EPS, Earnings Per Share last year was $16.70 per share

and it distributed $4.40 per share in dividends

thus only distributing 28% of its earnings

retaining 70% to reinvest in business growth or to have share buy back

Other significant stocks, like Broadcom last year distributed a dividend of $19.70

which compared to its earnings of $33.80 is only 60%, so there's still plenty of money left

If you check each of the stocks, you'll see that the current holdings of this fund

are mostly profitable and dividends are just a part of their earnings

So, we can be confident that the dividends paid by this fund can be sustained

and there's even potential for growth

However, a dividend yield of only 2.8% sounds quite low

If we're only talking about the yield on passive income, 2.8% indeed isn't very high

But you need to think about total return

which includes dividends plus capital appreciation

These companies are only distributing a part of what they earn as dividends

Let's assume the distributed amount is half

that is, they distribute half and retain the other half, meaning the payout ratio is 50%

This means that the companies within this fund are distributing a 2.8% dividend yield

which is only half of what they've earned

In fact, they earned 5.60 and they're only distributing half of it

The other half, the additional 2.80 is retained to grow their business

or they do nothing with it, keeping it as cash within the company

Either way, the value of the company increases

By how much? That would be the additional 2.8%

So the total return, simply is at least the sum of those two 2.80%, which is 5.6%

If you're buying US stocks or a US stock ETF to earn passive income

a disadvantage is the US withholding tax

meaning the dividends paid by US stocks and ETFs

before reaching your hands, the government already deducts 30% for tax purposes

So, with a 2.8% dividend yield, you actually receive only about 2%

If you want to avoid US withholding tax, you might consider a European UCITS ETF

Most are listed in London and can be purchased in US dollars or British pounds

like the VHYL, which is Vanguard All-World High Dividend Yield UCITS ETF

This fund's dividends aren’t subject to US taxes

It tracks a different index than the one mentioned earlier

The previous one only included large US companies, this one invests in global stocks

Let's see what it holds

The largest 5 holdings again include Broadcom, JP Morgan, Exxon Mobil, P&G,

and Johnson & Johnson

Even the stocks ranked 6th to 9th are the same as in the previously mentioned VYM

It’s only the tenth largest holding where we see non-US stocks

which is Japan's Toyota with a dividend yield of 3.1%

Looking back at the dividend history over the last decade

it can be said to be somewhat unstable, with some years higher and others lower

not showing a consistent increase every year like the first one

another thing to note is that

although this UCITS ETF does not require US withholding tax

it has higher management fees, at 0.29% per year

nearly five times higher than the previously mentioned ETF

Another thing to consider is that it has lower liquidity

The first VYM has over $100M USD in trades overnight

but the second, the London-listed UCITS ETF VHYL only trades about $1M USD overnight

If you're investing HK$8,000, it's not an issue

but if you want to buy more, like HK$1 million

that already represents 10% of the day's total trades

This could lead to some slippage in trades, which is another type of cost

So far, we've explained using stock ETFs to obtain passive income

but there's a downside in that you still face significant market risk

For example, if there's a market correction

a drop in stock prices could lead to capital losses

Plus, companies might cut dividends during a recession, leading to reduced payouts

So, there's inherent risk involved

Some people don't want this uncertainty

especially those nearing retirement who want stable and secure passive income

In such cases, I would consider bonds

especially given the bond yields today are much higher than a few years ago

Three years ago, bond yields were only around 2%

but now they have more than doubled to about 5.3%

If you accept a higher risk, such as with investment-grade corporate bonds

the yields can even reach up to 6%

In Hong Kong, we seldom talk about bonds as the entry cost for Asian bonds is very high

typically requiring hundred thousands of Hong Kong dollars

But it's different in the US, like with government-issued US Treasury bonds

where the entry fee can be less than HK$8,000

So, US retail investors are much more engaged with bonds than those in Hong Kong

But buying bonds can be more advantageous for Hong Kong people

because unlike U.S. stocks, the interest paid on bonds is not taxed

So if it yields 5%, you actually receive that full 5%

5% is really not bad

a few years ago, having 4% of passive income was already difficult to achieve

Now U.S. Treasuries, considered the safest investment, are offering 5%

However, once the interest rate cutting cycle begins, yields might decrease again

Some people don't understand bonds and think they are risky

because if interest rates rise or fall, bond prices will fluctuate

So they don't understand why others say U.S. Treasuries are the safest

Firstly, the safety of U.S. Treasuries

is because people believe the U.S. government will not default

Secondly, when you buy a bond

the yield is locked in at the moment of purchase

It's like making a fixed deposit with a bank

where you set the time and the term, and you lock in the yield

Changes in market interest rates can cause bond prices to rise or fall

but as long as you hold them until maturity

your yield will be what was locked in at the moment of purchase

So now, if you buy a US Treasury bond that matures in six months with a 5.3% yield

once you buy it, no matter how interest rates change, you will ultimately receive 5.3%

Why choose bonds over a bank fixed deposit?

Actually, it doesn't matter much, either can be done

depending on which offers a higher return

Generally speaking, without special offers

the returns from banks tend to be lower than those from government bonds

because banks need to make a profit

They act as intermediaries taking their cut

That's the bank's business model

Next, consider what kind of bonds to buy

For simplicity, I'll continue explaining US Treasuries

But if you want a higher return, you could consider investment-grade corporate bonds

or for even higher returns, you might opt for bonds with a lower credit rating

How much riskier are they?

For details, you can refer to the bond video in the top right corner

Back to passive income, choosing bonds is similar to making a fixed deposit

think about how long you want to lock up your money, which involves the Yield Curve

Currently, short-term bonds maturing within a year, yield 5.3%

those maturing within two years yield 4.7%, ten years yield 4.3%

Why the difference?

Because the current U.S. interest rate is 5.3% but the market is pricing in future rate cuts

so longer-term bonds offer lower interest rates

Does this mean short-term bonds are a better deal? Not necessarily

because even though you might buy a short-term bond now

like one that matures in a month with a 5.3% yield

that doesn't mean you will continue to get 5.3% over the next two years

Meaning you can't just buy one this month at 5.3%, and expect the same next month

and continue this for 24 months

assuming this will total better than now buying a two-year bond at only 4.7%

The outcomes of both approaches will be the same

the U.S. Treasury market is very efficient

so choosing what suits you best is more important

But making a wrong choice isn't the end of the world

for instance, if you buy a 30-year bond and then need the money two months later

you can sell it on the market

But it depends on the market conditions, the selling price could have risen or fallen

Compared to other investment products, using bonds for passive income

especially U.S. Treasuries, is much safer and more reliable

Meaning you don’t have to worry about them not repaying you, or not paying dividends

If one day the U.S. government really can't pay

your concerns at that time wouldn’t be about money

but surely about a much more serious issue

The downside of using government bonds for passive income

is that they only pay interest twice a year

so when you receive a payment, you have to budget it for the next six months

But receiving that money earlier, means losing the opportunity to earn more from it

essentially not maximizing the return on passive income

In terms of operations, I use Interactive Brokers to buy bonds

To learn more about IB, you can click the link in the description below

If you want more frequent payouts, like every month

and a higher interest rate

consider the third investment product, covered call ETF

What is a covered call ETF? It’s a fund that tracks an index

like XYLD which tracks the S&P 500

but it also issues call options, meaning it sells call options

This represents giving up some potential upside in exchange for a premium

and the money earned is distributed back to shareholders monthly

So, looking at its dividend history

Last month, May, it distributed 2.8

0.34 in April and 3.2 in March

Over the last ten months, it has distributed nearly 10% in dividends

But how stable is this dividend for passive income?

It depends on how valuable the call options it sells are

If the market is volatile and volatility is high

the call options it sells are more valuable, leading to higher dividends

It also depends on the index levels

if the index is higher, the call options are worth more, thus paying out more

So, its dividend payments are unstable

You can see that over the past ten years, sometimes it pays $1, sometimes $5

yielding between 5% and 15%

In terms of operations, a covered call ETF is still an ETF

so you need to buy at least one share

And the market price of this XYLD is $40, which is an entry fee of about 300 hkd

Although the dividends are high and frequent

as investors, we must consider the total return

In this respect, because it involves selling call options, it means giving up potential upside

So, if the tracked index rises, like the S&P 500

which has increased by 80% since September 2021, represented by the orange line

the total return of this ETF, which is the sum of dividends paid and price appreciation

over the same period was only 43%, which is only half

There are many types of covered call ETFs

the latest ones don’t track the market but individual stocks instead

such as The NVDY ETF tracks NVIDIA stock

and because NVIDIA is highly volatile, the call options it sells are very valuable

making this covered call ETF yield a 50% dividend last year

However, these types of covered call ETFs that track individual stocks

carry much higher risk

Because while the gains are capped, the losses when it falls are borne entirely by you

If you want to know more about covered call ETFs

you can watch the video in the top right corner

It contains a detailed explanation of the financial risks and uses

and whether they are suitable for long-term investment

If you want to learn more about the stock market

hear from someone with professional investment experience

sharing views on the market and what stocks to look at

then join my Patreon

If you want to learn more about Patreon, you can watch this video

or sign up to try it out

There is a free 7-day trial available now

That's it for today, see you next time