It can be really tempting to throw all your cash at cheap stocks these days. You’re either too scared to invest, or investing way too much in this stock or another. But when it comes to investing, it’s always the long-term approach that works best on the TSX today.
Today, I’m going to provide investors with a sure fire way of creating that $500 in monthly passive income we could all use. Once you reach it, that could be a lifesaver for the next economic downturn. Or you can simply reinvest it again and again! Whatever you choose, here’s how I would reach that $500 in a safe manner.
Start with what’s doable
Before you sink every penny you have into a stock, consider what you can actually afford. This means creating the dreaded budget. While most of us know that we should create a budget, few of us actually follow one. In fact, only about half of Canadians have a budget, and even fewer follow it!
Now more than ever it’s the perfect time to create a budget. Inflation and interest rates mean your bills, gas, and groceries have all gone up. So you need to look back on about the last three months, and see what you need to pay for. Then, look at what you can cut!
From there, see what you can afford to put towards investments. A great starting point is about 5% of each paycheque. Sure, that’s small, but you can always increase it as needed. And it’s certainly better than zero.
Make it automatic
Now that you have an idea of how much you can invest, don’t even think about it! Make your investments like a bill, with automated contributions that come out each month no matter what. If you worry that you need to cancel them, then it may be that your budget isn’t as tight as you thought it was.
In the case of that 5%, let’s say you’re making what the average Canadian does. That’s about $60,000 as of 2021 numbers, or slightly higher. So if you’re putting aside 5% each year, that comes to $3,000 invested starting this year.
But let’s say after the recession you can bump it up to 10%! That would bring your future investments to $6,000 each year. With that in mind, I would want to create the biggest bang for my buck right now. In that case, I would consider Peyto Exploration & Development (TSX: PEY). With an$11.50 share price and 11.47% dividend yield, it’s certainly a great choice on the TSX today.
Reach $500 per month
Obviously, it’s not going to be the first year that you’re reaching $500 per month. Remember, we’re aiming for the next recession. That recession will come in just over a decade, maybe longer. So here’s how it would work out, starting out with a $3,000 investment and then adding on $6,000 annually.
| Year | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Shares Owned | Year End Stock Price | New Balance |
| 1 | 261.00 | C$1.33 | C$346.37 | C$3,384.94 | C$6,000.00 | 765.21 | C$12.62 | C$9,660.04 |
| 2 | 765.21 | C$1.41 | C$1,078.96 | C$10,795.99 | C$6,000.00 | 1283.28 | C$13.77 | C$17,676.02 |
| 3 | 1,283.28 | C$1.50 | C$1,922.55 | C$19,697.36 | C$6,000.00 | 1817.01 | C$15.03 | C$27,307.65 |
| 4 | 1,817.01 | C$1.59 | C$2,892.28 | C$30,344.55 | C$6,000.00 | 2368.11 | C$16.40 | C$38,832.27 |
| 5 | 2,368.11 | C$1.69 | C$4,005.10 | C$43,032.24 | C$6,000.00 | 2938.2 | C$17.89 | C$52,569.86 |
| 6 | 2,938.20 | C$1.80 | C$5,279.86 | C$58,099.67 | C$6,000.00 | 3528.81 | C$19.52 | C$68,888.78 |
| 7 | 3,528.81 | C$1.91 | C$6,737.49 | C$75,936.65 | C$6,000.00 | 4141.37 | C$21.30 | C$88,212.42 |
As you can see, it would take just under seven years to reach the goal of $6,000 in annual dividends for $500 per month! You would by then have $561 coming in each month! Plus, an $88,212.42 portfolio to brag about.
