Retirement is a serious thing. It’s supposed to be enjoyable, but it can be incredibly stressful when it comes to the financial aspect. After all, your entire future rests in the ability of your finances to take on the load.
That’s why creating $1,000 each month can be a lifesaver. Sure, you have income perhaps through pensions, the government, and your savings. But every bit helps — especially when you consider that your costs may not go down but up, as you age and need more assistance.
Therefore, today, I’m going to focus on how to safely create that income each and every month.
Don’t just choose one or two stocks!
Instead of investing in one or two stocks for your retirement, it’s far better to have a diverse portfolio if you’re seeking passive income. Consider exchange-traded funds (ETF) for this reason. What’s great is that these funds are managed by financial advisors. It’s like have a whole team at advisors looking out for your best interest.
What’s more, you can narrow your focus through investing in ETFs to what will suit you best. There are lots of dividend income ETFs, so you’ll then have to figure out which kind makes the most sense for you. But in my view, one of the best is iShares Global Monthly Dividend Index ETF (CAD-Hedged) (TSX: CYH).
Why this ETF?
Its name really tells it all. This iShares company offers monthly dividends. However, it goes beyond that by creating a global portfolio that investors in their retirement years can rely on. If the Canadian market goes down, it has a slew of other companies that can pick up the slack. It’s the same if another country’s market falls.
Right now is a great example as to why this is important. The markets are down, and there are countries that will enter a recession but others that will get out of it sooner. This ETF could therefore help you get out of your own personal downturn quicker as well.
The ETF currently has a dividend yield at 4.61% as of writing. This comes to $0.948 dividend annually, which is distributed on a monthly basis. Next, let’s see what it would take to create that $1,000 per month.
Adding it up
Let’s say you want this income immediately. In that case, below, you’ll find exactly how to create $1,000 per month, or $12,000 per year, in passive income.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND (ANNUAL) | TOTAL PAYOUT (ANNUAL) | FREQUENCY | TOTAL INVESTMENT |
| CYH | $20.12 | 12,658 | $0.948 | $12,000 | Monthly | $254,678.96 |
As you can see, that is a massive investment. (Please note that we at the Fool don’t recommend putting such a large sum into only one stock.) Now, let’s say you want this income in the next decade. Let’s see how much that would take for investors willing to wait it out based on historic performance of this ETF.
| Year | Principal | Annual Dividend | Yield | Yield On Cost | After DRIP Value | Principal Increase | New Balance | Cumulative Dividends |
|---|---|---|---|---|---|---|---|---|
| 1 | $150,000.00 | $7,125.59 | 4.65% | 4.75% | $157,125.59 | $9,525.00 | $166,650.59 | $6,975.00 |
| 2 | $166,650.59 | $7,586.11 | 4.46% | 5.06% | $174,236.70 | $10,582.31 | $184,819.01 | $14,407.29 |
| 3 | $184,819.01 | $8,062.26 | 4.28% | 5.37% | $192,881.27 | $11,736.01 | $204,617.28 | $22,312.71 |
| 4 | $204,617.28 | $8,553.93 | 4.10% | 5.70% | $213,171.20 | $12,993.20 | $226,164.40 | $30,706.98 |
| 5 | $226,164.40 | $9,060.97 | 3.93% | 6.04% | $235,225.37 | $14,361.44 | $249,586.81 | $39,605.71 |
| 6 | $249,586.81 | $9,583.26 | 3.77% | 6.39% | $259,170.07 | $15,848.76 | $275,018.83 | $49,024.35 |
| 7 | $275,018.83 | $10,120.65 | 3.62% | 6.75% | $285,139.48 | $17,463.70 | $302,603.18 | $58,978.21 |
| 8 | $302,603.18 | $10,673.00 | 3.47% | 7.12% | $313,276.18 | $19,215.30 | $332,491.48 | $69,482.46 |
| 9 | $332,491.48 | $11,240.16 | 3.33% | 7.49% | $343,731.65 | $21,113.21 | $364,844.85 | $80,552.13 |
| 10 | $364,844.85 | $11,822.00 | 3.19% | 7.88% | $376,666.86 | $23,167.65 | $399,834.51 | $92,202.12 |
As you can see, if you made a $150,000 investment, it would take a decade to reach over $12,000 in passive income each year. Plus, you’ll have created a portfolio worth almost $500,000! Being patient literally pays.
