Right now is an excellent time if you’re trying to make a passive-income portfolio. And if you are, the Tax-Free Savings Account (TFSA) is the best way to achieve it.
TFSA investors can invest in stocks that produce passive income through dividends and use that cash to reinvest again and again. But how do you even get started? Let’s take a look.
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Budget, budget, budget
If you’re going to invest, then you need to first come up with a budget. Trying to make money isn’t going to do you any good if you’re still struggling with high interest from debt and credit cards. So, make sure you create a detailed budget that includes every payment, including a debt-repayment plan.
If you think you’re ahead and already have a budget, I would consider going over it again. The last year or so has been crazy with inflation and interest rates. I’ll bet your payments and budget has pretty much gone out of the window in that time.
Look over the last three months, come up with a budget, and look at what you can actually afford to put aside before investing in anything.
Create goals
Sure, you want to create passive income through a passive-income portfolio. But for what purpose? TFSA investors should also have a goal, even if that goal isn’t something lofty like retirement. Is it to pay down student debt? Buy a house? Have a child? Whatever your goal, meet with your financial advisor to come up with a plan to achieve it.
Then you can feel much more motivated to work towards your passive-income portfolio goal with this in the back of your head. I would even recommend creating automated contributions that come out monthly or even bi-weekly. Then you won’t have to even think about your investments — or your reinvestments, for that matter.
What to buy
Now, for the fun part. If you’re making a passive-income portfolio, I would come up with strong long-term holds that you can reinvest in again and again. For that, I would look for an essential real estate investment trust (REIT), a Big Six bank, and a balanced exchange-traded fund (ETF).
A solid REIT choice is Slate Grocery REIT (TSX:SGR.UN), which has a dividend yield at 7.94% and trades at just 5.17 times earnings as of writing. It will continue to do well, as the company invests solely in grocery chains across the United States. Occupancy as well as leases remain stable, so you can look forward to those monthly dividends coming out month after month.
A great Big Six bank would be Bank of Montreal (TSX:BMO). While Canadian banks have provisions for loan losses, BMO stock is solid for growth and dividends. It’s done pretty well this year, with shares down just 7% in the last year, which is pretty good compared to the other banks. You can also pick up a dividend yield at 4.39% as of writing while it trades at 6.53 times earnings.
Finally, for a balanced ETF, I would go straight to Vanguard Balanced ETF Portfolio (TSX:VBAL). This is a great ETF to consider as a base for your passive-income portfolio. You get income at a yield of 2.11% as of writing, with a 60% invested in stocks, and 31% in bonds as of writing. This will keep your overall investments happy and healthy no matter what the market brings.
Bottom line
A passive-income portfolio is absolutely in reach. I would simply go over your budget from the last few months, see what you can afford, and create a balanced set of income options. By doing this, you’ll certainly have a passive-income TFSA that you can set and forget for decades.
