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PASSIVE INCOME AND HOW YOU CAN BENEFIT FROM IT.

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Edgar de Picciotto, co-founder of ikigai, the beautifully designed digital banking app that uniquely combines financial self-care with wealth management, shares how to make your passive income work for you.

 

Financial resilience and power relies on the understanding of your income and is a necessity for a positive relationship with your money.

But understanding our income doesn’t just mean looking at what we are earning and from where anymore. These days, more of us are discovering and starting to understand that your income can come in many different forms – and no longer needs to be defined by what salary band you fall under.

When income comes into the conversation, most automatically look at our jobs, although some – such as multi-hyphenates, entrepreneurs, company partners or people working in private equity – may have more complex income streams.

And there are so many forms of income too, like the interest earned on a savings account, dividends that come from a successful investment, or the rent you receive on your spare bedroom.

The difference with these types of income is that they require far less day-to-day work. They’re forms of passive income.

 

Edgar de Picciotto

What are the differences? 

Active income includes salaries, tips and fees – all the things you’re paid for by an employer, whether that’s from full-time, part-time, freelance or contracted work.

Passive income, therefore, is money that comes into your account without directly working to earn it. Unlike your nine-to-five, passive income continues to flow into your accounts no matter what you’re doing – even if you’re retired, sick, or taking a holiday.

If you look at the definitions, then passive income is different from your active income because it’s working for you even when you’re not working for it. The benefit of passive income is that it makes you less reliant on your salary, giving you more security and freedom when it comes to your money.

 

Does passive mean easy? 

In many ways, the phrase ‘passive’ income is a misnomer.

Almost all passive income concepts require some heavy lifting before they can be left to do the hard work for you. In most cases, setting up a passive income stream requires you to invest time or money – often both – into an asset that will, in due course, start paying you back.

Whether monetising a blog for extra income via affiliate links, or renting out a spare room in your property, the reality is that you need to spend time upfront in order to create the momentum required to keep the money coming in further down the line.

This doesn’t necessarily undermine the principles of passive income, but it’s important to remember that passive income is not a ‘get rich quick’ solution.

 

How do I get started? 

There are a number of ways to begin earning through secondary means.

Many options involve monetising an asset that you already own – such as a blog or a social media channel, a spare room or a parking space. You could also create new assets that you can sell, like an ebook or online course.

Historically, earning interest on your savings could contribute a small amount to your income each year. However, as a result of the particularly low interest rates currently available on savings accounts, it’s no longer feasible to earn considerable interest. In fact, you could even be losing money by holding it in a savings account, thanks to inflation.

 

Clever Investing, risk with potential reward

Investing in anything means that your capital is at risk, but there are benefits to investing that can help you achieve your financial goals sooner and in some cases even generate a passive income.

For example, if you invest in certain stocks or funds, you can earn a dividend income. These are amongst the easiest ways to earn a passive income, often requiring you to simply set up a brokerage account. There are still considerations – they’re never guaranteed, and rates may go up, down or even be cancelled. Likewise, yields can vary from a fraction of a per cent to more than 10% with dividends, but these are usually clearly stated on the asset for investment. To make dividend income a more reliable source of income, you need to think strategically – do the research and ensure you diversify your portfolio.

The same goes with other kinds of investing. While the act of investing in things like stocks and shares is relatively passive, the research that goes into it is active. In many cases, it requires reading annual reports each day, to better understand whether or not a business is a good investment.

If you are unable to commit the time to this level of oversight, one option is to set up a fully-managed portfolio with a wealth management provider such as ikigai. This allows you to invest without having to do as much of the research yourself. As well as saving time, portfolios are pre-built meaning they are often diversified and can be matched to your risk appetite.

Ultimately, a passive income is at its most powerful when it makes your money or assets work as hard for you as you do in your job.

By doing some research to find the method that best suits your life and goals, you can make the most of what you have and grow your wealth without compromising your financial health.

 

Finance

GET READY FOR A LARGER-THAN-EXPECTED INTEREST RATE SPIKE IN 2022

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By Nicholas Sargen

As investors assess what is in store for 2022, they should not lose sight of what has transpired over the past two years. What stands out is that the COVID-19 pandemic is different than any prior global shock in the last 50 years. When it struck in early 2020, the economy suffered its steepest decline on record as businesses and schools were shuttered. But it also rebounded quickly as businesses reopened, and it has since recouped all the output declines and most job losses. The economy has also experienced the steepest rise in inflation in three decades.

The quick recovery is testimony to the unprecedented fiscal and monetary policy response that occurred, as well as to the resilience of U.S. businesses and the workforce that has been facilitated by the digital economy.

Nick Sargen

The vigorous policy response in turn provided cover for investors to add risk to their portfolios. Stock market returns since late March 2020 have exceeded any comparable period in U.S. history with the major indices doubling in value. And there has been no meaningful correction over that period.

Looking ahead, the investment landscape will likely prove trickier for several reasons. First, the COVID-19 pandemic is proving more difficult to eradicate than many had anticipated. Second, the Fed has signalled it will likely raise interest rates to curb inflation. Third, much of the good economic news has been priced into markets.

Of these, the hardest to forecast is the pandemic. One of the key lessons from the delta variant, however, is that it did not produce lasting damage to the economy because businesses and schools remained open. Accordingly, Federal Reserve Chair Jerome Powell told lawmakers that the economic effect of the omicron variant would not be “remotely comparable” to what occurred at the onset of the pandemic. But it could influence monetary policy if the economy slowed.

The focus of investors currently is on the prospect of Fed tightening to curb inflation. After being in denial earlier, the Fed now recognizes the pickup in inflation this year is not transitory and could persist into 2022 and 2023.

At the December Federal Open Market Committee (FOMC) meeting, the Fed announced it would speed up its tapering of bond purchases to conclude in March 2022, and it increased the projections for the federal funds rate. The median forecast of FOMC members now calls for three rate hikes in both 2022 and 2023, with a terminal rate of 2 percent-2.25 percent by 2024.

The looming issue is whether this gradual glide path of rate increases will be sufficient to bring inflation back to the Fed’s average annual target of 2 percent.

I am sceptical for several reasons. First, the median projections of Fed members for the coming year call for real GDP growth of 4 percent and the unemployment rate to fall to 3.5 percent, which suggests the economy will be approaching its long-term potential.

Second, inflation expectations are becoming embedded in wages, which have risen steadily and are now approaching 4 percent.

Third, while supply-chain disruptions may ease as the coronavirus pandemic abates, the housing component of the Consumer Price Index is likely to stay elevated. Finally, fiscal, and monetary policies are still accommodative.

Financial markets have taken the news in stride thus far, as the Fed’s forecasts are in line with what investors were anticipating. Bondholders, nonetheless, should realize that even if inflation subsides to the Fed’s 2 percent target in the next few years, they in effect will be accepting negative yields in real terms throughout this period.

 

So, why would they do so?

My take is that investors’ expectations about inflation and interest rates have been shaped by the experience following the 2008 Global Financial Crisis, when economic growth and inflation were subdued for a decade. This outcome is consistent with prior bouts of financial crises, as Carmen Reinhart and Kenneth Rogoff spell out in their article “Recovery from Financial Crises.”

By comparison, the coronavirus pandemic is a completely different type of shock that did not inflict lasting damage on the economy and the financial system.  While it has taken a heavy toll on people’s lives and well-being, it has also unleashed unforeseen changes in the way business is conducted and how people go about providing for their livelihood. Throughout the travail, what stands out is that many U.S. companies are highly adaptable and experienced increased productivity while others have seen their businesses disrupted.

As a result of the policy support during the pandemic and the resilience of the American economy, the U.S. stock market has posted outsized returns in the past two years that far exceed other developed markets. To a large extent, the gains this year reflected a strong rebound in corporate profits, with earnings for S&P 500 companies up by 40 percent. Going forward, however, investors should lower their return expectations as the economy and earnings normalize while interest rates rise.

How well the stock market performs will hinge to a large extent on how inflation fares. If it recedes as the Fed expects and interest rate increases are gradual, valuations are likely to remain high. But should inflation prove to be persistent, and the Fed is compelled to accelerate the pace of rate hikes, the stock market would become vulnerable, and the bull-run could end. For this reason, I believe caution is warranted.

Nicholas Sargen, Ph.D., is an economic consultant and is affiliated with the University of Virginia’s Darden School of Business. He is the author of “Global Shocks: An Investment Guide to Turbulent Markets.”

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Looking Ahead: 2022 Fintech Predictions and Reflections

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By

Will Marwick, CEO of IFX Payments

 

2021 was the year of recovery and opportunity for many, following months of disruption caused by the pandemic. But whilst many industries have struggled to bounce back from the disruption, many Fintechs have managed to thrive in a somewhat hostile economic climate as a result of innovation, digital disruption, lucrative funding and a vision for how products can change the lives of consumers whilst helping businesses grow.

From a personal perspective, it’s been wonderful to see that as an industry we have shown our continued resilience and ability to pivot to customer needs which has seen the likes of open banking and contactless payments boom in the wake of the pandemic. The agility and disruptive mindset of both established players and emerging disruptors meant that competition has only become fiercer, making everyone work harder and smarter which ultimately pushes the boundaries of what is possible.

Its therefore no surprise that UK FinTech funding more than doubled to $11.4 billion in H1 of 2021 alone, indicating investor confidence in the industry. This will pave way for further opportunities to innovate and disrupt financial services for the better.

2021 for IFX was one of the best years to date since our inception in 2015. We’ve expanded our capabilities, worked with new partners and bolstered our team with great success. All of which we aim to amplify even further this coming year.

As we look forward into 2022 it’s important to consider the new emerging trends and movements set to shake up the industry and how as a business we can play our part in what is set to be another trailbrazing year.

 

2022 Trends 

1. Embracing Fintech Partnerships. In 2022 we’ll see greater collaborations between services providers across a host of industries. Being a collaborator, rather than a competitor, is key to being successful in this sector as we all look to identify a means of fitting into a modular ecosystem. As a starting point, every business has to recognise that success comes from leveraging the strengths of others to amplify their own. Businesses must admit that they can’t be best at everything and counter that by creating strategic partnerships that will reign supreme. Ultimately, collaborating with and embracing other specialists within the sector allows fintechs to expand their capabilities and set themselves apart from competitors. As the industry grows, to be the best in the field, means not offering the cheapest cost or the tightest margin, but integrating value-add propositions that make the product more appealing to its customer base. For instance, this year IFX have successfully partnered with Volt connecting IFX’s virtual IBANs with Volt Connect allowing UK and EU-based merchants to realise the full potential of open payments.

2. Changing Consumer Payment Habits via Open Banking. Open Banking has been a hot topic in 2021 and we know the work will continue in the space this year. Whilst the majority of the work in the last year around Open Banking was rather conceptual, it paved the way for some innovative ideas and an enhanced customer experience. Without doubt, there are many benefits of Open Banking, settlement is faster, and rails are cheaper and arguably safer for customers but now it faces the challenge of encouraging customer adoption by competing with the convenient and simple UX of card payments afforded by smart phones and computers. As such, I expect that changing the mould of how people make payments will dominate the majority of the conversation and work we do as an industry in the coming year.

3. Elevating Regulation. At IFX we always aim to set industry best practises through our regulatory expertise, and ultimately break the mould of malpractice that has blemished the FX industry historically. Whilst regulation has definitely taken centre stage, and took over most senior level discussions, I anticipate a greater focus on PSPs and EMIs with both safeguarding and operational resilience being tested to ensure customer funds are adequately protected. Being stringent in terms of regulation is a way for payments and fintech companies to separate themselves from the pack. The FCA is also sure to take further regulatory action as they start to clear the covid backlogs, which in my opinion will be a welcome move to help combat some of the issues we have seen this year. Firms need to be sophisticated when it comes to making sure they’re compliant with regulations. Safeguarding client money correctly is a challenge which requires consistent attention so we’re likely to see this being an obligation that firms invest in significantly.

4.Introduction of the UK Central Bank Digital Currency. This is likely to be the door for many banks to embrace crypto-related technology. Blockchain infrastructure is an incredibly powerful tool that can revolutionise the industry through a host of features not limited to instant global settlement and transaction monitoring capabilities. The hesitancy to embrace this infrastructure, alongside a number of crypto assets, appears to come from the dark web usage of old, where assets were used for illicit purposes and money laundering; but then again, so is cash. Ultimately, we shouldn’t be afraid of the capabilities that this revolutionary development can carry due to the negative connotations. Instead the focus in 2022 should be on education and equipping our industry on understanding the power of the blockchain so that everyone can understand the good that it can do, the risks it carries and how to mitigate those.

 

So What Now?

2021 saw great innovative strides taken in the payments and fintech industry, but as we look ahead into 2022 it doesn’t look as if this cadence is likely to plateau. The industry will continue to adapt and grow to cater to the changes in consumer and business habits, and we’ll see Partnerships, Open Banking, Regulation and Digital Currency as key strategic milestones across the board. At IFX, we are constantly striving to be the best in our fields and through partnering with other brands, tightening our regulation processes, and constantly educating ourselves and others on developments in the industry, we look forward to experiencing even greater growth in 2022 and beyond.

 

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