If you were born in at least 1991, that would mean you turned 18 in 2009. That year is important, as it’s the first year Canadians had access to the Tax-Free Savings Account (TFSA).
Since that date, the government has added more and more contribution room to the TFSA. As of 2023, there is now a total of $88,000 in contribution room for investors to place their cash.
But don’t just place it; create a diversified portfolio for long-term income and, yes, passive income!
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Get access to high-yielding GICs
Guaranteed Investment Certificates (GIC) are hugely popular right now, and rightly so. While higher interest rates aren’t good for getting a mortgage, it is good for bond yields. This is why investors should certainly put much of their cash in long-term GICs.
GICs work like this: investors agree to lend a certain amount of money to a bank or corporation. In return, they’re given a fixed interest rate each year for the agreed period of time.
So, in the case of GICs, you could agree to put aside a chunk of that $88,000 towards your retirement. Let’s say you did that with $40,000 for 10 years at a fixed rate of 4.25%. That would mean every year, you’re gaining another 4.25% of that $40,000.
Here’s how that would break down.
| Year | Investment | Interest Rate | Interest Earned | Portfolio Total |
| 1 | $40,000 | 4.25% | $1,700 | $41,700 |
| 2 | $41,700 | 4.25% | $1,772.25 | $43,472.25 |
| 3 | $43,472.25 | 4.25% | $1,847.57 | $45,319.82 |
| 4 | $45,319.82 | 4.25% | $1,926.09 | $47,245.91 |
| 5 | $47,245.91 | 4.25% | $2,007.95 | $49,253.86 |
| 6 | $49,253.86 | 4.25% | $2,093.29 | $51,347.15 |
| 7 | $51,347.15 | 4.25% | $2,182.25 | $53,529.40 |
| 8 | $53,529.40 | 4.25% | $2,275 | $55,804.40 |
| 9 | $55,804.40 | 4.25% | $2,371.69 | $58,176.09 |
| 10 | $58,176.09 | 4.25% | $2,472.48 | $60,648.57 |
As you can see, in just a decade, your GIC alone would create returns of $20,648.57! By the time a decade is up, you’ll be earning almost $800 more in interest than you did the first year! This is certainly an excellent option to invest safely.
Invest in other assets
Now a GIC is certainly a strong option for investors who want to keep at least a portion of their cash safe. However, this isn’t where you’re going to create the monthly income that you’re seeking. Plus, what if you need some of that cash during the next decade?
That’s why monthly paying stocks, exchange-traded funds, and other assets are strong options. There are many with high yields, but you’ll want something yielding around 5% or more to really make your investment worth it. But again, you also want to keep your investment growing as well as safe.
That’s why investing in a Canadian bank is the perfect option right now. Canadian banks have bounced back from every single banking downturn thanks to provisions for loan losses. And of the banks, Bank of Montreal (TSX:BMO) is a safe and growing option.
BMO stock has been expanding into the United States through its purchase of Bank of the West. Yet shares are down by 9% in the last the year, providing a great point to jump in — especially as it offers a dividend yield at 4.97% while trading at 11.79 times earnings.
Now, of course, you should create a diversified portfolio, but for the sake of brevity, let’s see how the remaining $48,000 could be put to work, creating passive income.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND (ANNUAL) | TOTAL PAYOUT (ANNUAL) | FREQUENCY |
| BMO | $118 | 407 | $5.88 | $2,393.16 | Quarterly |
You could be making $2,393.16 in annual passive income if you purchased these shares today. That would create monthly income of $199.43, or $598.29 when it comes out quarterly. And all that can be used to reinvest, creating more income than you dreamed!
