Here’s why 2023 will be a huge year for passive income

Even though it’s only January 5th, I’m already excited about my passive income prospects this year. In fact, I am more enthusiastic than last year, because the market situation looks more interesting during the year. This is why.

Do I like passive income?

Unlike income from work, passive income is not earned, so it comes from sources outside of paid work. There are different types of unearned income, such as interest from cash savings, property rental income, coupons (interest) from corporate and government bonds, and more.

But my favorite form of income is stock dividends. This regular amount of cash is paid by the company to its shareholders, usually monthly or semi-annually. However, not all listed companies pay cash dividends, plus these payments are not guaranteed. Indeed, during the Covid-19 crisis of 2020, some of the UK’s biggest businesses cut or canceled dividends to conserve cash.

What’s more, I have taken powerful lessons in financial life from my great hero, the American billionaire and philanthropist Warren Buffett. He once warned: “If you don’t find a way to make money while you sleep, you’ll work yourself to death.” And that’s why I continue to collect stock dividends, either to reinvest in stocks or to help pay my mounting bills.

Passive income is set to increase in 2023

There are two main reasons why I think that passive income will rise in 2023. The first is the fall in asset prices, as the value of global stocks, bonds and property has fallen since 2021. The second is the rise in global interest rates, which are rising. yield on savings and bonds.

For example, a few years ago, the best UK savings accounts paid rates close to zero. Now you can earn more than 4.5% a year (before tax) from our top deposit account. In addition, the world has a record $18trn of negative-yielding bonds by the end of 2020. The pile of debt paying negative interest rates is now gone. splendid.

according to AJ Belllatest Dividend Dashboard report to dividend stocks, UK dividends are expected to leap by 8% this year to a record high of £87.7bn (against £81.5bn in 2022). That works out to about £1,300 for each of the UK’s 67.5 million people (although foreign investors actually own the majority of the UK stock market.)

Of course, my goal as an old school, income and dividend investor is to get a lot of this passive income for myself. And that’s why my wife and I have been investing heavily in cheap UK stocks for the past six months. Our goal is to build enough assets to allow us to retire comfortably and enjoy our time as ‘silver seniors’.

Summing up

Since I don’t plan on working until I quit, I like passive income. The good news is that this unearned income will explode this year, thanks to lower asset prices and higher asset yields. And my sincere view is that investors who buy income-producing assets today will do better than those who bought expensive stocks 12 months ago!