Yahoo Finance How to Create a Top-Notch, Passive-Income Portfolio From Scratch
Written by Amy Legate-Wolfe at The Motley Fool Canada
There has been some good news for Canadians over the last few months. Inflation peaked last year and has since come down by about half. Further, interest rates remain relatively steady. But that still leaves Canadians reeling with the possibility of this all changing should we enter a recession. What’s more, we’re still left with higher prices that have yet to really come down.
So, it’s no wonder many Canadians might not want to take their savings and sink it into the stock market right now — a market that could certainly drop in the near future. Today, I’m going to help you create a passive-income portfolio starting with absolutely $0 to invest.
Create a steady passive-income stream
To start off, Canadians wanting to invest using $0 from savings should consider creating a separate passive-income stream. This can be used entirely for your investments, without the worry that you’re going to risk losing the money you’ve saved over the years.
However, the key is that you need to make it passive. I say this because you don’t want to create another active revenue stream. Active would be a part-time job, for example, but could also include having an online store selling your passion projects.
The goal is that you continue working your regular life, creating income as you normally do, but with this side passive-income stream coming in. For this you might consider renting out a shed for storage or a parking space you have downtown. You might also consider going through your old travel photos and selling them on website such as Alamy and Shutterstock. This is an easy solution for quick revenue to be used to invest.
Let’s go with the parking option
Let’s say you work downtown and typically bike or commute on foot. That leaves a parking spot open you could be renting out. In Toronto, on average, you’ll pay around $350 per parking spot. In Vancouver, it’s around $250. So, if you went $50 to $100 less, you could give users a great deal and suddenly be swamped in income each month.
If you hand out that parking spot for $300 in Toronto, that’s $3,600 per year you now have to invest. What’s more, you can use that cash to reinvest every single month in the stock of your choice. That is where the next part comes in.
Choose long term
Investors already likely know that long-term investing is the best option. Right now is a great time to get a hold of long-term safe stocks, such as those in the Canadian banking industry. A top option, in my opinion, is Canadian Imperial Bank of Commerce (TSX:CM).
CIBC stock offers a deal, given that it trades down 19.25% in the last year. This has provided investors with a dividend yield currently at 6.01% as of writing. So, why would I recommend a stock that’s dropped so much?
The answer is simple: history. If you look at CIBC stock, it always comes back from these downturns. This is just a mild drop, for example, compared to the Great Recession back in 2008 and 2009. The stock eventually came back, providing those that bought low with high returns.
From 2009 alone, shares are still up about 110% as of writing. Investors can look forward to more similar growth in the years to come.
Bottom line
Now, let’s look at what you would get from an investment into CIBC stock, reinvesting dividends and adding $3,600 each year over the next five years. We also continue to see shares rise at a compound annual growth rate of 3.42%, and dividends at 6.93%.
Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Shares Owned | Year End Stock Price | New Balance |
|---|---|---|---|---|---|---|---|
64 | $3.40 | $217.60 | $3,817.60 | $3,600 | 126 | $58.17 | $7,417.60 |
126 | $3.64 | $465.92 | $7,883.52 | $3,600 | 185 | $60.16 | $11,483.52 |
185 | $3.89 | $719.65 | $12,203.17 | $3,600 | 242 | $62.22 | $15,803.17 |
242 | $4.16 | $1,006.72 | $16,809.89 | $3,600 | 298 | $64.35 | $20,409.89 |
298 | $4.45 | $1,326.1 | $21,735.99 | $3,600 | 352 | $66.55 | $25,335.99 |
Investors will end up with $25,336 in their portfolio with this method after just five years. This growth would mean adding almost $7,336 on top of the $18,000 you would receive from just setting aside your $3,600 each year.
The post How to Create a Top-Notch, Passive-Income Portfolio From Scratch appeared first on The Motley Fool Canada.
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Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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