Are you starting off with $14,000 to invest and wondering how to generate monthly TFSA income?
If so, you need some clear principles to guide you toward your goal.
Invested at a typical market yield, $14,000 won’t generate a lot of recurring passive income. However, it is enough to get a little bit of passive income coming in. Also, if you progressively add to your $14,000 starting amount over time, you could reach the point where you are getting monthly TFSA income that adds up to a lot at the end of the a year.
In this article, I explore how to consistently generate monthly TFSA income.
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Guaranteed investment certificates
Guaranteed investment certificates (GICs) are fixed-income investments offered by banks. Often called “term deposits,” they are somewhere between a savings account and a bond. Typically, you pay a certain amount of money to your bank to have it locked up for a period and then receive a sum of interest at the end. This is the typical way that GICs work. However, you can buy GICs with interest calculated and paid monthly. Typical GIC interest is 2.75% per year. So, if you buy a $14,000 monthly pay GIC with 2.75% annual interest, you get back about $33 per month in interest. That’s more than enough to offset your chequing account fee!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Guaranteed Investment Certificate | $14,000 | 1 | $33 per month | $396 per year | Monthly |
Stock funds
Stock index exchange traded funds (ETFs) are also good assets to hold in a TFSA.
Take the Vanguard Canada High Dividend Yield ETF (TSX: VDY) for example. VDY is a Canadian fund of Canadian high-yield dividend stocks. Because of its high dividend focus, the fund excludes low and no-yield stocks. Therefore, the fund has an above-average dividend yield. According to the fund’s website, the distribution yield is 3.45%. So, if you invest $14,00 in the fund, you get back $39.27 per month in passive income – assuming the yield remains unchanged. Here’s the math on that:
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Vanguard FTSE Canada High Dividend Yield ETF | $74.73 | 187 | $0.21 per month ($2.52 per year) | $39.27 per month ($471.24 per year) | Monthly |
Apart from the relatively high yield, VDY has many other things going for it. First, its holdings are relatively cheap, with a 16.5 average P/E ratio. Second, it’s a true index fund tracking the FTSE Canada High Dividend Yield Index. Third and finally, it has a relatively low 0.22% management expense ratio, which is below average. So, you don’t pay an overly high price to access the Vanguard. Canada High Dividend Yield ETF portfolio.
Money market funds
Last but not least, we have money market funds.
These are funds that invest in portfolios of government-issued fixed income or zero-coupon bonds. Examples include Canada bonds and U.S. treasuries. Usually, these funds pay out a bit of income each and every month. So, if you invest $14,000 into one, you should get a little bit of monthly TFSA income coming in.
Foolish takeaway – monthly TFSA income
Generating monthly income in a TFSA may seem like a tall order. But it can be done. With a combination of monthly pay GICs and funds, you can get that sweet monthly cash flow hitting your account each and every month.
