Hey Jeremie! Thank you, it feels like it came together nicely considering we had no idea exactly how it was going to happen haha
This is SUCH a good question. So, we have gone through one "pull back" so far as the market dipped from 2021 through to late 2022 and our portfolio was down $130k. All of our funds continued to pay dividends on schedule. There were a few different types of funds that we no longer prioritize investing in (called split funds) that cut dividends for 4 months during the worst of it, but that only accounted for about $400/month.
We have since recovered the $130k (and now with this market dip, lost a bit again) but here's the cool thing - we continued to get paid every single month.
While we haven't gone through a full "crash" like 2008 or 2020, these type of funds we invest in actually generate the income paid through writing covered calls so they THRIVE in volatility.
Yes, our value will be down on paper but we still get paid monthly while we wait for it to recover. We have a very long time horizon, so I'm not worried :)
This is the topic of my next diary entry I believe!
Thank you Alex! There are actually a ton of them on both the Canadian and US market. Traditional "dividend stocks" are focussed on growth with a 1-4% monthly distribution. There is an entire class of funds that are focussed on creating monthly income with less overall capital growth. They use leverage and covered calls to generate the premiums paid out each month to us :) (Usually 8-12% annually)
This article will break down our strategy and what funds on the TSX we invest in (examples). There are even better funds in the US market!
Thanks so much. That’s incredible. Never heard of this before. I’m in Australia and we’re always behind of you guys in US/CA. Doubt we have the same products here :(
I'm sure it'll make its way there! There is a Facebook group I'm a part of - the founder is a friend of mine and his YouTube channel is where we originally learned about passive income investing. There are 14k people in the group! I imagine someone in there might know about some Australian options if you put the question out to the group?
FYI - here was a response from the group that might be helpful:
"Depends on the brokers there and the type of restrictions on their accounts, if any that is - If they have international brokers they generally would give access to global markets including US and Canada"
Thanks Tanessa for all your transparency here - often people feel icky talking about money (the thing we all desire). Alex, I'm also in Australia and I have investments. I have just put a question into my broker to see what ETF's we have here on our exchange that may offer similar high income / low capital growth options. I'll let you know if you like what he comes back with.
Hey Zoe! You're right, most people DO feel weird about money. The way my hubby and I see it, we were inspired for what was doable by someone else's transparency so we decided to be that example too.
This check-in with your broker is awesome and helpful! Thank you. Do you mind sharing what broker you use so others will know?
It might be interesting to find out what funds on the Canadian or US market you are able to access and what the tax withholding details on that look like.
You are welcome! He is now with a Financial Mgt firm called Bluerock. Nothing at all to do with Blackrock. I have previously accessed the US market, so the Canadian would be no different, except there is the loss/gain factor to consider on currency exchange. I don't know if self-managed funds here in Aus have the foreign exchanges available.
Yeah, our dollar is in the garbage right now too! Makes travelling much more expensive! If you have access to both markets, I wouldn't even bother with Canadian funds - their US equivalents are much better in my experience.
I have heard back from my broker for Australian ETF's:
VHY – high-yielding Australian Large Caps.
UMAX – writes call options over the S&P500, yields just over 4.0% but also largely mirrors the performance of the S&P500.
PL8 – owns Australian big dividend players, not just large cap and does rotate between stocks to pick up dividends. Has yielded above 7.0%.
HVST – rotates between stocks to harvest dividends as they come due. Has paid good income but total return been less than the market.
Credit funds such as MXT and KKC are yielding above 8%, but fund prices and yields could drop in a recession- same for most shares and no capital growth potential. Credit funds pay a spread over Cash rates effectively, so yields will drop if Central banks cut rates.
There are also unlisted credit funds such as the MA Priority Income Fund, which provides investors exposure to a diversified portfolio of defensive credit investments seeking to preserve capital and deliver stable monthly income of the RBA Cash Rate + 4.00% p.a. (currently 8.1%). MA Financial co-invests 10% of the fund, and that 10% takes the first loss on any credit defaults, which aligns their interest with the investors and reduces the risk of loss. Income is paid monthly. If you wish to sell out of the fund, liquidity is available at the end of the month. The management fee inside the fund is 0.5%. They don’t have the volatility of listed funds, but in an extreme scenario, the monthly liquidity could get locked up for a while if a lot of investors want to redeem at the same time.
** This is not financial advice. Simply giving 3rd party options for people in Australia to consider. Please do your own research and consult professional advice if necessary.
Wow Tanessa, I just randomly stumbled onto your Substack and my mind is blown away!! Huge congrats to you guys — you’ve achieved SO much in such a short time frame!
It’s incredibly inspiring to read the real details (especially as a fellow mid-30s living in BC!). I just wanted to pop in and say thank you for sharing & I can’t wait to read more!! You might cover this elsewhere, but I’m curious what platform you recommend for Canadian investors?
This is incredible congratulations 👏 Great planning and most importantly great execution! Very inspiring.
How do you navigate (or will navigate) potential market crash?
Hey Jeremie! Thank you, it feels like it came together nicely considering we had no idea exactly how it was going to happen haha
This is SUCH a good question. So, we have gone through one "pull back" so far as the market dipped from 2021 through to late 2022 and our portfolio was down $130k. All of our funds continued to pay dividends on schedule. There were a few different types of funds that we no longer prioritize investing in (called split funds) that cut dividends for 4 months during the worst of it, but that only accounted for about $400/month.
We have since recovered the $130k (and now with this market dip, lost a bit again) but here's the cool thing - we continued to get paid every single month.
While we haven't gone through a full "crash" like 2008 or 2020, these type of funds we invest in actually generate the income paid through writing covered calls so they THRIVE in volatility.
Yes, our value will be down on paper but we still get paid monthly while we wait for it to recover. We have a very long time horizon, so I'm not worried :)
This is the topic of my next diary entry I believe!
I need to look more into those funds 👀 thanks for all the details!
You're welcome. If you are able to invest in the Canadian or US stock market, I definitely could point you in the direction on where to start looking!
Great article and an incredible achievement. I’m trying to understand which etfs generated this high dividend returns?
Thank you Alex! There are actually a ton of them on both the Canadian and US market. Traditional "dividend stocks" are focussed on growth with a 1-4% monthly distribution. There is an entire class of funds that are focussed on creating monthly income with less overall capital growth. They use leverage and covered calls to generate the premiums paid out each month to us :) (Usually 8-12% annually)
This article will break down our strategy and what funds on the TSX we invest in (examples). There are even better funds in the US market!
https://tanessashears.substack.com/p/understanding-our-passive-income
Thanks so much. That’s incredible. Never heard of this before. I’m in Australia and we’re always behind of you guys in US/CA. Doubt we have the same products here :(
I'm sure it'll make its way there! There is a Facebook group I'm a part of - the founder is a friend of mine and his YouTube channel is where we originally learned about passive income investing. There are 14k people in the group! I imagine someone in there might know about some Australian options if you put the question out to the group?
https://www.facebook.com/groups/249796403036406
Thank you! What’s the YT channel? I don’t have fb.
FYI - here was a response from the group that might be helpful:
"Depends on the brokers there and the type of restrictions on their accounts, if any that is - If they have international brokers they generally would give access to global markets including US and Canada"
For sure! It’s youtube.com/@passivincomeinvesting, although it’s designed for Canadians/Americans.
I’ll put the question out to the group and see what they say too!
Thanks Tanessa for all your transparency here - often people feel icky talking about money (the thing we all desire). Alex, I'm also in Australia and I have investments. I have just put a question into my broker to see what ETF's we have here on our exchange that may offer similar high income / low capital growth options. I'll let you know if you like what he comes back with.
Hey Zoe! You're right, most people DO feel weird about money. The way my hubby and I see it, we were inspired for what was doable by someone else's transparency so we decided to be that example too.
This check-in with your broker is awesome and helpful! Thank you. Do you mind sharing what broker you use so others will know?
It might be interesting to find out what funds on the Canadian or US market you are able to access and what the tax withholding details on that look like.
Thanks for being helpful :) Cheers!
Tanessa
You are welcome! He is now with a Financial Mgt firm called Bluerock. Nothing at all to do with Blackrock. I have previously accessed the US market, so the Canadian would be no different, except there is the loss/gain factor to consider on currency exchange. I don't know if self-managed funds here in Aus have the foreign exchanges available.
Awesome, thanks for sharing.
Yeah, our dollar is in the garbage right now too! Makes travelling much more expensive! If you have access to both markets, I wouldn't even bother with Canadian funds - their US equivalents are much better in my experience.
I have heard back from my broker for Australian ETF's:
VHY – high-yielding Australian Large Caps.
UMAX – writes call options over the S&P500, yields just over 4.0% but also largely mirrors the performance of the S&P500.
PL8 – owns Australian big dividend players, not just large cap and does rotate between stocks to pick up dividends. Has yielded above 7.0%.
HVST – rotates between stocks to harvest dividends as they come due. Has paid good income but total return been less than the market.
Credit funds such as MXT and KKC are yielding above 8%, but fund prices and yields could drop in a recession- same for most shares and no capital growth potential. Credit funds pay a spread over Cash rates effectively, so yields will drop if Central banks cut rates.
There are also unlisted credit funds such as the MA Priority Income Fund, which provides investors exposure to a diversified portfolio of defensive credit investments seeking to preserve capital and deliver stable monthly income of the RBA Cash Rate + 4.00% p.a. (currently 8.1%). MA Financial co-invests 10% of the fund, and that 10% takes the first loss on any credit defaults, which aligns their interest with the investors and reduces the risk of loss. Income is paid monthly. If you wish to sell out of the fund, liquidity is available at the end of the month. The management fee inside the fund is 0.5%. They don’t have the volatility of listed funds, but in an extreme scenario, the monthly liquidity could get locked up for a while if a lot of investors want to redeem at the same time.
** This is not financial advice. Simply giving 3rd party options for people in Australia to consider. Please do your own research and consult professional advice if necessary.
Thanks for going into detail about this! I'm wondering how much did you buy your townhome for in 2015 and how much did you put down at the time?
You're welcome! I bought it for $496,000 as a new build, including 5% tax and I think I put about $120,000 down on it.
I've written a few other diary entries on the house sale and our investing timeline - happy to link them if you want to dig in. Cheers!
Wow Tanessa, I just randomly stumbled onto your Substack and my mind is blown away!! Huge congrats to you guys — you’ve achieved SO much in such a short time frame!
It’s incredibly inspiring to read the real details (especially as a fellow mid-30s living in BC!). I just wanted to pop in and say thank you for sharing & I can’t wait to read more!! You might cover this elsewhere, but I’m curious what platform you recommend for Canadian investors?