Yesterday, I bought some more Canadian Income Funds, also called Royalty Trusts or Canroys. As I mentioned before, I recently refinanced a property and I managed to pull some money out (totally tax-free!).
Rather than spend the money on an SUV or a big-screen TV, I opted to divide the money into 3 parts. The first 1/3rd went towards replenishing my emergency fund which was drawn down by vacancies in my rental properties. The second 1/3rd went towards future investments in summer just in case there's a pullback in the stock market and the last 1/3rd went to building up my passive cash-flow.
Long time readers will realize that I haven't made any effort display my net worth or any goals of net worth. That's because I feel its a meaningless number. If I had a $1 million dollar net worth and it only generated $25,000 a year in income (like Cd's did a few years ago) that's pretty sad. On the other hand, if I owned a $1,000,000 car-wash that generated $125,000 that's pretty significant.
My goal is to generate passive income. Its your passive income that provides financial independence, not your net worth. If you have $3,000/month through various passive income streams, you've got your basic food and shelter taken care of and you won't starve if you lose your job. That is my short term goal. My longer term goal is generate $10,000/month in passive income so I can travel the world without worrying (or working).
I'm currently not even at 50% of my $3,000/month goal so at least 1/3rd of all future investments must take me towards that goal. That's why I bought some Canroys yesterday. I bought Harvest Energy (HTE) and Canetic Resources(CNE). They generate revenue from oil and gas production and refining. The noteworthy part is that they payout around 12% dividend per year. Since the selling of oil and gas leads to a depletion of reserves, its important that they keep some of their revenue for future acquisition of new properties and for drilling new wells. Both of them have a payout ratio of under 80% which isn't bad considering they have proven and probable reserve lifespans of 9.5 years.
There are Canroys with lifespans of 6-7 years and payout ratios of 95% that yield 15% but I'm suspicious of their longterm viability. These two seem like pretty safe bets. If oil prices rise there's a chance of increased payout and also capital appreciation. If not, I'm still getting my 12% yield.
The only issue I have is that the Canadian Government takes its 15% tax straight out of my account. But even considering for that, my yield is still just over 10%. Besides, I get a US tax credit for that amount, so its not a total loss.
I also bought some units in Prism Income Fund(QSR.UN) which owns and operates nearly 500 fast-food franchises in Canada (Taco Bell, KFC, Long John Silver and Pizza Hut). Their stock has been pretty stable compared to other Canroys following the whole Taxation issue. Its also currently yielding 12% and while I don't expect much capital appreciation, I don't expect it to drop in value or its dividend to fluctuate with the price of oil and gas.
So now I'm one step closer to my goal of $3,000 in passive income. This brings my total passive income from Canroys to $300 per month. I'm also getting $300 from a loan to a developer at 2% per month. And I average around $300/month from my various online ventures. (Even though my online ventures aren't passive, I enjoy pursuing them and I have geographic independence. Thats why I'm counting it).I'm also making around $150/month from my direct oil and gas drilling investments, so I'm almost 1/3rd of the way to my goal!
When I get the money back from the developer, it'll be redeployed at a much lower rate. But I expect the cash flow from the direct oil drilling program to increase enough to cover this short-fall.
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12 comments:
You seem to like Geographical Independence.....
So why not post passive income instead of net worth? :) I got into the whole blogging thing via the NetWorthIQ website. I feel the number is meaningful though it is not the only meaningful number - the composition in terms of retirement account/non-retirement account is important as is the investment performance/skill of the person in question. Just like GDP is a meaningful number for a country but not the only number needed to get an idea of the true standard of living in a country - other variables like literacy, democracy, life expectancy are also important. The latter tend to correlate with GDP but not perfectly.
well I just did!
if i get around to updating the template, i'll put it up.
"My longer term goal is generate $10,000/month in passive income so I can travel the world without worrying (or working)."
What I nice goal to make. You seem to be on track so far
You've gotta have a dream, coz if you don't have a dream, how you gonna make your dreams come true?
I can't say I agree more with this post... passive income is the key to living a stress free life... trick is managing this goal with your significant other :)
Trying to generate more passive income in the short term, as well as the long term are great goals to have. I look forward to reading more about how you plan on achieving that!
P.S. Thanks for visiting my site. I added you to my blogroll.
Thanks for the ideas about Canadian income funds. My ultimate goal is $250,000 of annual passive income. Mostly that'll come from rental real estate, but I also plan to have a portion of it come from fixed income (which will also serve as a reserve fund for the real estate). Up till now I had really only planned on using my taxable US bond fund for fixed income, but I do realize there are other options. I have some things to consider!
As a frequent international traveller and someone who makes a lot more than $10,000/month I have to tell you that it is probably not even close to enough to live the lifestyle you want unless your plan to travel internationally means flying cheap coach deals and staying in cheap hotels, etc. Expect to pay around $500 per night for a good hotel room in most major cities after you include taxes and all the room surcharges, then taxis, restaurants, entertainment, and of course flights add up to a lot as well. I may be a bit jaded though because I live in an expensive city where $10k/month barely makes you middle class.
$3k is the end goal - its just the beginning.
Great to see a higher monetary goal. I've set my goal at $100 for passive income. I think I need to be more optimistic. I enjoy reading your blog. Keep it up!
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