Insights

Why I think a growing passive income is the key to financial freedom

A generous passive income that grows at a relatively fast pace could provide a significant amount of financial freedom, in my view.
The post Why I think a growing passive income is the key to financial freedom appeared first on The Motley Fool Australia. –

ASX dividend shares represented by cash in jeans back pocket

For many people, achieving financial freedom is likely to be a main goal within their lifetimes. This will enable them to enjoy greater independence and, in some cases, a better quality of life.

However, a large sum of money does not necessarily lead to greater financial independence. Rather, it is the passive income it provides that can make the biggest impact on an individual’s financial outlook.

Therefore, now could be a good time to start investing in cheap dividend stocks with long-term growth potential. Over time, they could make a real difference to an investor’s quality of life.

Achieving financial freedom via a growing passive income

Building a large portfolio during a lifetime is likely to be viewed as a means of achieving financial freedom by many investors. While this is partially correct, the reality is that spending capital is rarely a good idea. Over time, the size of an investor’s portfolio will decline if they are spending capital, rather than the income it produces. This can mean that they eventually run out of money and face a tough financial situation.

As such, the passive income provided by a sum of capital is likely to have a bigger influence on an individual’s financial prospects. For example, a large sum invested in dividend shares is likely to provide greater financial independence through producing a larger income return compared to capital held in cash savings at a low interest rate.

Furthermore, the rate at which a passive income grows can have a significant impact on an individual’s financial freedom. Should it fail to rise at an above inflation pace, they may find that their spending power deteriorates over time. As a result, buying high-yielding shares with the potential to offer dividend growth over a sustained time period could be a sound move.

Investing today to achieve financial independence

Clearly, how an individual invests today depends on their stage in life. For those investors seeking to achieve financial freedom in the long run, buying a diverse range of high-quality businesses at low prices could lead to impressive capital returns. A stock market rally that causes valuations to revert to their long-term averages appears to be likely. This could produce high returns that catalyse an investor’s portfolio in the coming years.

For those investors who are seeking to make a passive income from their capital today, investing in stocks with dividend growth prospects could be the main priority. They could include companies that pay out a low proportion of their profit as a dividend, as well as those businesses that have bright financial futures. They may be able to afford to deliver strong dividend growth that makes a positive impact on an investor’s financial freedom in 2021 and beyond.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia’s Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a ‘must consider’ for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don’t miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Click Here For Your Free Stock Report

Returns As of 6th October 2020

More reading

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why I think a growing passive income is the key to financial freedom appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!