Imagine transforming your Tax-Free Savings Account (TFSA) into a powerhouse that cranks out passive income month after month.
Yes, the TFSA isn’t just for stashing cash; it’s a dynamic tool that can grow your wealth through investments, and best of all, the gains are tax-free.
Whether it’s covering your monthly phone bill, paying down your car insurance, or just accumulating savings for a rainy day, the income you can generate from a well-structured TFSA can make a tangible difference in your financial life.
Let’s explore how you can start turning your TFSA into a passive-income-generating machine — targeting $4,600 a year, or $300 per month.
Buy the right ETF
It’s not just individual stocks that can generate income—there are many types of assets that can pay you regularly. That’s why I like BMO Monthly Income ETF (TSX:ZMI).
It’s a fund of funds, meaning it holds numerous other BMO ETFs that give you access to the following income-generating assets:
- Corporate bonds: Essentially loans to companies that pay you interest regularly and your principal back at maturity.
- U.S., Canadian, and international dividend stocks: Stocks that consistently pay out a portion of their earnings.
- Preferred shares: Similar to bonds, preferred shares offer fixed dividend payments but come with limited upside potential like stocks.
- Covered calls and cash-secured puts: Options strategies designed to generate income, with covered calls earning you premiums from selling the right to buy shares you own at a specified price within a certain period. Cash-secured puts involve selling put options with enough cash set aside to purchase the stock if the option is exercised, earning income from the premiums received for selling the puts.
I like ZMI because it’s essentially a complete income portfolio in a single ticker. Currently, it’s paying a solid 4.91% distribution yield, with a very reasonable 0.2% expense ratio.
How much do you need to invest?
Assuming ZMI’s most recent September 4th monthly distribution of $0.07 and a share price of $17.19 as of September 12, remained consistent moving forward, an investor using a TFSA would need to buy roughly $73,676.34 worth of ZMI, corresponding to 4,286 shares to receive around $300 monthly tax-free.
| ETF | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| ZMI | $17.19 | 4,286 | $0.10 | $300.02 | Monthly |
