A solid retirement plan is the one thing that can help you transition from a life of building wealth to a life where you can live off it. As a Canadian retiree, you have retirement income streams like Old Age Security (OAS) and the Canada Pension Plan (CPP) to count on during your golden years. However, these pensions are there to provide partial coverage for your living costs in retirement. You need investments to supplement this income for a comfortable retirement.
This is where your investments in retirement accounts during the wealth-building phase in your life can kick in and cover the gaps in your income. Building a portfolio of monthly dividend stocks in a Tax-Free Savings Account (TFSA) can help you enjoy the additional income during your retirement without worrying about moving to a higher tax bracket.
For investors seeking a predictable income, one of the best and longest-standing investments to consider for this purpose can be Canoe EIT Income Fund (TSX:EIT.UN). Let’s take a closer look.
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Canoe EIT Income Fund
EIT.UN is a $2.7 billion market-capitalization closed-end income fund that provides investors $0.10 in monthly distributions based on the number of shares they own. The fund does that by actively managing a dividend-focused portfolio of equity securities across the Canadian and American stock markets. The primary focus of the fund is to secure a reliable income, not capital appreciation.
This income-focused approach is what sets EIT.UN apart for Canadians who want to supplement their retirement income with additional passive income streams. EIT.UN does not operate like standard Exchange-Traded Funds (ETFs). ETF managers typically align the portfolios to a specific index to reflect the performance of said index. In a closed-end fund like EIT.UN, the portfolio manager has the freedom to adjust the capital allocation as and when necessary to align with the fund’s goals.
EIT.UN also uses leverage of up to 1.2 times the assets under its management to generate potentially greater returns. In simpler terms, the portfolio can borrow up to $20 for every $100 invested to enhance income based on a $120 investment. This is a double-edged sword.
The leverage can improve the potential returns, but it also increases the risk of losses in the same manner. Considering these factors, EIT.UN is not a truly fixed-income asset. It is based on equity securities and can face the impact of market movements.
Foolish takeaway
As of this writing, EIT.UN trades for $16.71 per share, and it distributes $0.10 per month to its shareholders for each share they own. Suppose you want to generate $2,000 per month in passive income by investing in EIT.UN. In that case, you would need around 20,000 shares or units of EIT.UN to generate that amount each month.
The math is pretty simple: $2,000 ÷ $0.10 = 20,000.
To own 20,000, you would have to invest 20,000 x $16.71 = $334,200
The $334,200 invested in EIT.UN can generate $2,000 per month. If you buy and hold such an income-focused portfolio in a TFSA, you can enjoy those returns tax-free.
It is important to remember that you must never put all your eggs in one basket. I would never advise you to invest such a large amount in a single equity security. It is always a great idea to diversify your investment capital across various income-generating assets to protect yourself from downturns.