It’s never too late to start investing. But the closer you come to retirement, the more the strain can certainly weigh on you. Saving for retirement may seem like a huge burden these days, with inflation and interest rates causing even more pressure on retirees.
However, as mentioned, it’s never too late. So let’s say you’re a retiree just getting started, one that wants to use the additional contribution room in their Tax-Free Savings Account (TFSA) of $7,000 each year to invest.
From there, your goal is to create a passive income portfolio that can pay out each month. Here is exactly what I would consider.
Get a monthly dividend ETF
If you want a safe and secure way of creating passive income long term, then I would certainly look to a monthly dividend exchange traded fund (ETF). A monthly dividend ETF distributes dividends on a monthly basis, providing investors with a regular income stream. This can be advantageous for retirees who rely on consistent income to cover living expenses.
These ETFs typically hold a diversified portfolio of dividend-paying stocks or other income-generating assets. By investing in an ETF, investors gain exposure to a broad range of companies across various sectors, reducing the risk associated with holding individual stocks.
Furthermore, ETFs often have lower management fees compared to actively managed funds, which can eat into investment returns over time. With $7,000 per year to invest, minimizing fees is crucial to maximize the growth of an investment portfolio.
Finally, in a TFSA you’ll have even more tax advantages. Canadian dividend ETFs may offer tax advantages, as Canadian dividend income is eligible for the dividend tax credit, which can result in lower taxes for investors compared to interest income from bonds or savings accounts. And you can use that extra cash to reinvest it back into the ETF itself.
Putting it to work
If you’re looking for a strong monthly passive income ETF, in this case, one Canadians will want to consider is the iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI). This ETF is the perfect option with a dividend yield at 5.4% and shares up 6% year to date as of writing.
The XEI ETF seeks to provide long-term capital growth by investing primarily in a diversified portfolio of Canadian dividend-paying stocks. It aims to track the performance of the S&P/TSX Equity Income Index. The underlying index is designed to measure the performance of 50 high dividend-yielding Canadian companies. These companies are selected based on their dividend yield, dividend growth rate, and payout ratio.
Some benefits of this ETF include that it offers investors exposure to a broad range of Canadian companies across various sectors, including financials, utilities, telecommunications, energy, and industrials. This diversification helps reduce concentration risk associated with holding individual stocks. And as its passively managed, you can get a dividend-focused ETF while still keeping commission fees low.
Bottom line
So what sort of returns could you see from this ETF? Let’s say you put that $7,000 into the ETF now and it rises by another 6%. Here is what that might look like.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| XEI – now | $25.75 | 272 | $1.44 | $391.68 | monthly | $7,000 |
| XEI – 6% | $27.29 | 272 | $1.44 | $391.68 | monthly | $7,422.88 |
In total, you could be creating $391.68 in dividend income and $422.88 in returns. That’s total passive income of $814.56 in just a year! Which can compound and build each and every year you hold it.
