It’s a jolly good time of the year to have a bank account full of income. How could you use an extra $500, $1,000, or $1,500 per month in revenue?
Would receiving an extra $500 monthly in guilt-free dividends change your life? I know that it has changed mine in spectacular ways.
Often, we ask Santa for specific gifts to make our lives extraordinary, but what if we asked for income that could purchase these gifts for us? Even better, this dividend income is recurring—repeating itself every month.
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My favorite way to generate income. There are many ways to invest for dividends (income investing, dividend growth, index funds), but my favorite is income investing.
On the surface, income investing is quite simple—you exchange a sum of money (say $1,000) for a product that pays you (say 10%).
My $1,000 would produce $100/year in dividends in the above example. That’s $8.34 in dividend income per month.
Yes, that does not seem much if you look through the wrong lens. However, let’s look through the “lens of abundance.”
What could you do with an extra $9 monthly in free money? Thinking even larger, isn’t it nice to generate a paycheck outside your W-2 job, boss, and work site?
How to Create Passive Income for Advanced
This $9 dividend is just a down payment on a much grander life that is full of income, freedom, and family. You only need to keep investing to grow your monthly pot of income.
Closed-End Funds (CEFs) for the win. Of the six types of income investing products, CEFs are my favorite because they are the most straightforward.
Closed-end funds are very similar to exchange-traded funds (ETFs), except they have a limited number of shares.
This allows them to form a Net Asset Value (NAV) based on their holdings. ETFs grow and shrink based on the number of shares investors buy and sell daily.
Once you get the hang of investing in CEFs, the sky’s limit. Your only objective is to find CEFs that match your goals, risks, and payment schedule.
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I have invested over $80,000 in CEFs throughout my nine brokerage accounts. I aim to generate $10,000/month in CEF income, which I am giving myself ten years to achieve.
Currently, we receive roughly $900/month in CEF income. But the real question is, can CEF income slowly replace your paycheck from work?
Trusting CEFs for your retirement? The short answer is YES. Closed-end fund income can replace your work income.
CEFs have a long history of generating out-sized returns for income-focused investors. In some cases, they even beat the returns of the S&P 500, although that’s not our intent.
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My goal is to generate consistent and safe income. I don’t focus on the daily gyrations of CEF prices. CEF prices can suffer tremendously depending on more extensive economic situations and conditions (i.e., raising interest rates).
However, as long as they keep cutting me a monthly check, I am “A” okay with their performance. And they have continued to cut me a check since my first investment in 2019.
Why ask Santa for CEFs? So, what makes CEFs so special? Why shouldn’t I just invest in a high-yield dividend company like AT&T (T) or Verizon (VZ)?
Most CEFs have active managers who look into their given markets to find deals. When they perform well, these CEFs can offer dividend increases, special dividends, and supplemental dividends.
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Trust me; getting a special dividend before the holiday season feels good. It’s great to receive supplemental dividends for the entire year to coincide with their regular dividend payments.
As a CEF investor, you are using the stock market to your advantage and to reach your goals. Everyone else is chasing the next big thing while you are building your own annuity.
Let’s look at some of my favorite CEFs that have served me well over the years. Many more CEFs can expose you to real estate, mortgages, healthcare, and banking.
- Pimco Dynamic Fund (PDI) – invest in mortgages, debt (yield 16.65%)
- Pimco Corporate & Income (PTY) – invests in income markets, debt (yield 10.65%)
- Pimco Dynamic Opportunity (PDO) – invest in mortgages, debt (yield 14.21%)
- Eagle Point Credit (ECC) – invests in collateral debt obligations CLOs (18.03%)
- Oxford Lane (OXLC) – invests in collateral debt obligations (yield 19.36%)
- XAI Floating Date (XLFT) – invests in collateral debt obligations (yield 15.72%)
- Nuveen Municipal Bonds (NVG) – invests in federal Tax-Free municipal bonds (5.15%)
- Reeve’s Utility (UTG) – invests in utility companies (yield 8.47%)
- Cohen & Steer Infrastructure (UTF) – invests in infrastructure (yield 8.61%)
As you can see, the yield can look ridiculous and unsafe. However, the more you research, the more you will understand how they derived these high-payments.
The rule of 72. My main concern when investing is getting my investment money back. I use the “Rule of 72” to determine when I receive all of my initial investment back as dividends.
Dividend vs. Capital Gains 2
Divide 72 by the yield (say 15%), and it will tell you how long it takes to get your money back. In this case, it will take 4.8 years (72/15).
Instead of worrying about a dividend cut, I just focus on how much money I have received from my product. I then look at how much I will receive in the future; it’s exciting.
In one of my portfolios, I have $6,709 invested in PDI. I have already received $2,009 in dividends from this position. All I have to do now is let PDI repay its loan from me—with interest!
Let your money work for you. You’ll work forever if you don’t understand and leverage passive income. You need your CEFs to work tirelessly to make you wealthy.
What can you do with your CEF paychecks? Anything you want. It’s your money, given back to you with interest.
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I like to use some of my CEF income to pad my savings account. I just retired, so having extra padding helps me sleep well at night.
I reinvest at least 25% of my CEF income to ensure I beat inflation and cost of living adjustments. But it’s nice to know I can use every penny of CEF income in one month, and it will return the next.
It may take some time to trust in CEFs and their exceptional payments. Most of us grew up believing we need to work hard for money.
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Conclusion. But the truth is that we need to work hard to understand money. Money originates from banks in the form of business loans, mortgages, and consumer debt.
When we purchase CEFs, we lend money to CEF managers, who use it to generate a return and pay us back—with interest! We are acting like a bank.
CEF income allows us to cut out the middleman (jobs) and get our income directly from the source. We worked hard to earn our wages; now we can let your money work hard for us.
I trust CEF managers to do what’s best for me as a shareholder; they haven’t let me down yet. Every month, I see a sparkling dividend sitting in my bank account. It’s Christmas every month when you invest in Closed-End Funds. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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