Understanding Our Passive Income Investing Strategy

An inside scoop on how our investments generate $$$ monthly.

It would be really easy to say it’s too overwhelming and close out this diary.

I’m going to challenge you NOT to.

It wasn’t too long ago that this stuff was new to me and felt like a foreign language…

…but my willingness to hear or read something, feel confused, read it again, google a few things and figure it out was HIGH.

In this freedom diary, I’m going to share the inner workings of HOW our investments make us cashflow and have grossed us just under $200,000 in the past 3 years.

“What Are You Invested In?”

It’d be easy to give you a screenshot of my portfolio and show you everything we’re invested in, but that doesn’t help you.

I want you to understand our strategy so you know WHY we do what we do.

I’ve gotten 3 messages in the past week asking what we are invested in that makes us money, so this blog is my answer to that question.

Before we jump in, I gotta say it: I’m not a financial advisor.

I’m self trained and am showing you what has worked for us. Please do your own research before you make any investments and use what you learn for educational purposes only 😉

Now, let’s talk about one of our favorite and most heavily weighted funds in our portfolio: Global X Enhanced S&P 500 Covered Call ETF, Ticker Symbol USCL.TO.

(By the way, the term ‘ticker symbol’ means the series of letters you would type when searching for or researching a fund).

The Breakdown

First, each fund will have a full description on its website. Here is the website for USCL.TO: https://www.globalx.ca/product/uscl

This fund is listed on the Canadian market on the Toronto Stock Exchange (TSX), a place where people can buy and sell stocks and shares of companies.

Let’s go through the reasons why we love this fund.

1. It’s an ETF.

ETF stands for Exchange-Traded Fund.

Picture a giant basket that holds a whole bunch of different stocks you can buy.

Instead of buying each stock (company) separately, you can buy this basket of funds and own a little piece of many different companies or stocks all at once.

Why is this awesome? It lets you spread out your money, lower your risk and potentially increase diversification.

If you had a tiny piece of 25 companies in one ETF (basket) and one company went bankrupt, you only lost 1/25 of your money. If you owned that company on its own, you’d lose 100%.

99.9% of our portfolio is made up of these baskets of funds (ETFs).

This particular fund, USCL.TO, holds the S&P 500 index, which is a tiny piece of the top 500 companies in the United States.

This includes all of the biggest companies, like Apple, Google, Meta, Nvidia & Berkshire Hathaway.

It’s a bit technology sector heavy, but is well diversified across many different sectors and mitigates risk because this particular basket holds 500 companies.

2. It uses 25% leverage.

This ETF uses borrowed money to increase the size of its portfolio by 25%.

This can be a double edged sword - it can increase profit if the market is going well OR can make the losses bigger if things don’t go so well.

Here’s an example: Imagine you have 100 pieces of gold and you borrow an extra 25. Now you have 125 pieces of gold.

If the price of gold goes UP, all 125 pieces are worth more so you’ll have profited more than if you just held 100 pieces.

If the price of gold goes DOWN, all 125 pieces are worth less so you lost more than you would if you just held the 100 pieces.

USCL.TO does come in a version that does NOT use leverage (USCC.TO), but we like the leverage because it is a larger portfolio to write covered calls on.

3. It uses a covered call strategy to increase monthly income.

The vast majority of our portfolio is invested in covered call ETFs.

Here is an analogy to understand covered calls that I learned from my friend Adriano at Passive Income Investing. (He has an AWESOME breakdown of covered calls on his YouTube channel HERE if you want to go much deeper.)

Imagine you wanted to sell your house.

A buyer comes along and you both agree on a price to sell the house at - $700,000.

BUT, the buyer still wants to look around for another 30 days and see if there are better houses available.

You aren’t in a rush to sell, so you accept a non-refundable cash premium payment of $1000 to hold it for him.

If he comes back in 30 days and wants to buy your house, you sell your house for the agreed on price and you keep the $1000 premium. (Score!)

If he doesn’t want it, all good. You part ways, you keep your house and the premium.

In this situation:

Homeowner = YOU
Buyer = Another investor
House = Stock you own
Hold Money = Covered Call Premium

Now, this is an oversimplification of the process, but it helps you get a basic level of understanding on what covered calls are.

The money USCL.TO fund managers generate from writing covered calls every single month make up a large portion of the cash we get paid as shareholders.

Covered calls boost the income you make and lower potential volatility because the money you receive from this process can help to offset any up or down movement in stock price.

In simple terms, covered call funds are good in a volatile market.

The best part? The USCL.TO fund managers do it ALL for you for a tiny fee. You just collect the cash.

The one downside to covered calls is that your capital invested will not grow as much as if you had purchased the S&P 500 index on its own without covered calls.

For us? We want guaranteed cash flow NOW instead of potential growth in the future. This is how we created freedom.

USCL.TO In Our Portfolio

As of July 29, 2024, you can purchase 1 share of this fund for $21.98.

We have purchased 3793 of them in our 3 accounts over the past 6 months at an average price of $21.18 per share for a total of $80,349.68 of capital invested.

Since the purchase price is higher today, our shares have gone up $0.80 in value for each share we own for a profit of $3,034.40.

But it gets better.

Each share we own pays us a $0.23/month cash distribution.

In June, we owned 3712 shares that paid $853.76 in July (3712 x $0.23/month).

Below is a snapshot of our July dividends from USCL.TO.

On July 16, we purchased an additional 81 shares to total 3793, increasing our monthly distribution to $872.39/month.

That is $10,468.68 per year (or, a smidge over 13% return) of tax efficient income made completely passively, regardless of if the market is up or down.

This is how we make passive income month after month.

Other Funds We Invest In

It’s important to understand that the style of investing we follow isn’t designed to grow your capital significantly.

Funds like USCL.TO are designed to be high income with minimal capital appreciation.

Our strategy is designed to cashflow NOW instead of hoping it’ll all be worth more when we are 65.

As of writing this, we are generating $7,232.71 every month in passive income.

It adds up quickly, especially when you compound your monthly earnings back into your portfolio.

If you’re in the Canadian market, a few other ETFs we have invested in include:

• CNCL.TO (Canadian Stock Market Index - S&P/TSX 60)

• HYLD.TO (Similar to S&P 500)

• BKCL.TO (Canada’s Big 6 Banks)

• ENCL.TO (Canadian Oil & Gas)

• QQCL.TO (Nasdaq Index - Technology Heavy)

• HDIV.TO (Multi-Sector, Diversified)

• HDIF.TO (Multi-Sector, Diversified)

• BMAX.TO (26% Fixed Income, Multi- Sector Diversified Globally)

Not in Canada? There are plenty of these funds on the US stock exchange too. You can see a review of some of them HERE.

Final Thoughts

So, how are you feeling after reading that?

If you’re a seasoned pro and that all made sense, nice work.

If you feel like your brain is swimming, that’s normal and you did it right. Nothing has gone wrong.

If financial freedom is important to you, you’ll read it again and maybe even a third time to let it sink in.

This stuff is important.

This is the one thought I’ll leave you with:

Did you go to school? I did. I spent 6.5 YEARS going to university (and $48k in tuition) to earn my BSc. in Biomedical Physiology and Kinesiology.

The original goal, before I opened my business, was to be a physiotherapist and make $80,000/year.

Think about the TIME and EFFORT that went into the skill set that would have given me a job that I had to work 40 hours per week to earn $80k/year.

We earn over $86k/year from our passive income portfolio alone and it continues to grow, month after month, without working ONE minute.

So, this skill set REALLY FREAKING MATTERS.

Having said that, if this freedom is something you want, you should consider putting at least as much time and effort into learning this skill set as you did going to school or taking a course or joining a mastermind.

You can make money without having to trade your time.

It’s time to get your time back.

Let’s get it.

Tanessa

P.S - Have questions? Is there a topic you’d love for me to share more about? Leave a comment and I’d be happy to cover it.