24-05-2025
How I'd Transform $7,000 Into a Reliable Stream of Passive Income
Written by Tony Dong, MSc, CETF® at The Motley Fool Canada
Lend me $7,000 and I'll pay you back $42 a month, forever. And if we're lucky, that original $7,000 might even grow over time. Sounds like a scam, right? But it's not. It's actually something that's very achievable inside a Tax-Free Savings Account (TFSA) if you pick the right investment.
One fund that fits the bill is the Canoe EIT Income Fund (). Here's why it could be a strong candidate for turning a lump sum into steady, tax-free monthly income.
is a closed-end fund (CEF) that gives you access to a professionally managed portfolio of about 50% U.S. and 50% Canadian stocks. It doesn't follow a benchmark index. Instead, managers actively pick companies with the goal of generating consistent income and capital appreciation.
Like many CEFs, trades on the exchange, which means its share price can differ from its net asset value (NAV). When it's priced above NAV, it trades at a premium; when it's below, it trades at a discount. This difference can offer opportunity depending on when you buy.
also uses light leverage of around 1.2 times to enhance both yield and returns. That means for every $100 of investor capital, the fund controls about $120 worth of investments. This modest borrowing boosts income but also amplifies volatility, so it's important to understand it's not risk-free.
Despite that, its long-term track record is solid. Over the last 10 years, if you reinvested all monthly distributions, you would have earned a 10.9% annualized return, an impressive result for an income-focused fund.
First, with $7,000 in your TFSA, and trading at $16.43 per share, you could buy approximately: $7,000 ÷ $16.43 ≈ 426 shares.
Each share pays a $0.10 monthly distribution, which has remained steady for more than a decade. That means every month, you'd earn: 426 × $0.10 = $42.60.
Because the TFSA is tax-free, you keep every penny – no income tax, no withholding tax, no paperwork. That's $511.20 per year in passive income.
And if you choose to reinvest those distributions, you'll slowly build more shares, which in turn generate more income each month, kicking off a powerful compounding effect over time.
The post How I'd Transform $7,000 Into a Reliable Stream of Passive Income appeared first on The Motley Fool Canada.
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