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**What I share with you is what I do to make my excess income work for me, please note: Before you jump in and invest or start anything. Make sure you do a pulse check on your finances. You need to know what is your risk tolerance? What is the minimum return on investment you are willing to accept? Do you need to access funds right away? Know how long you may need to wait to see returns, as most things I mention below are long term.

With investing, the rule of thumb is to invest in no more than 1-2 % of your cash or the size of your net worth so that even if you were to lose it, you will be able to sleep well at night.  Keeping these factors in mind will help you build your own rules about investments and decide what strategy will work best for you.**

a. Invest in High Dividend Stocks

Dividend stocks are a great source of passive income as you build up your portfolio over time. Why? When you invest in a dividend stock, you receive payments from the company when they have excess capital. This is usually paid quarterly but the intervals can vary. So think of someone paying you to invest in them.

The benefits are:

  • you can take that cash or reinvest your dividend helping you take advantage of dollar-cost averaging, and
  • when the markets go down, you will still get paid without taking too much of a hit on investments

How to choose a dividend stock?

Look for companies that have a consistent record of paying and increasing dividends. Stick with companies with sound financial performance. Look at their EPS (Earnings per share). You want to see a positive, not a negative number. Don’t just look for high yielding dividend stocks.

How to look it up?

Use Yahoo Finance. Type the stock symbol you are looking for under the search quote box:

You’ll see EPS and also Fwd Dividend/Yield. In the example below, the fwd dividend here is 2.71. It is the dividend paid per share you earn.  The Fwd Dividend yield (6.37%) is the dividend percentage the company pays. It gives you a general average idea of what is the percentage they pay. It is calculated by taking the Forward Dividend Yield per Earning / Average per share (in the example below it’s the previous close number).

If you are Canadian, open a TFSA (Tax Free Saving) Trading account with your local bank. This way the money you earn and gain can be tax-protected.

b. Invest in Trends

Change is a constant in our life. To succeed in life and stay ahead of the curve, I believe you have to actively observe trends and understand how it effects the economy we live in. What is ending and what is beginning?

When you notice trends, pick one or two you are interested to follow. Research them. Understand what opportunities these new trends will create and shape the economy we live in.  Are they short term, long term or wildcards? This will help you determine how long you hold the stocks for and how actively you should be monitoring.

It can help you identify what stocks or businesses to invest in or start. It can also help you prepare and develop the skills you may need to learn to be successful in order to survive and continue to position yourself to be able to choose yourself and have options. It puts you in the driver’s seat instead of the backseat to capitalize on the trends. May the odds be in your favor.

c. Peer-to-Peer Lending (P2P)

This crowdsource funding concept is fairly new in Canada but has been around in the US and Europe for a while. It’s an alternative way to generate a bit of income every month and this industry has even gotten Google and Facebook’s attention in which they have jumped on the bandwagon in investing in.

Essentially you are the bank and you can sign up to be an investor in small local businesses that are looking for loans. You can support the growth of local businesses and invest as little as $25 and collect monthly interest plus a bit of principle back until the borrowers pay off their loans.

Pros Cons
You can start small Defaults are a reality
Invest while you sleep with minimal risk It is not a wealth generator. You are not going to get rich overnight with it
The returns on average is higher than the interest you receive from the bank and beats inflation You can’t sell right away like a stock; You have to wait until the loan is paid back
You are building your income while helping small businesses through social lending

The key to minimizing your risk in P2P is to diversify – lending small amounts, as little as $25 to numerous businesses. Don’t be tempted by big returns. And re-invest the proceeds you receive back from those funds quickly and not let the cash sit in your account.

Here in Canada, we have one lending platform, The Lending Loop. It is a registered dealer and in every province and territory except for in Quebec.

In the United States, check out Lending Club or Prosper. Note that P2P is not yet available in all states. For those in the U.K. check out Zopa. Germany – Auxmoney, and Bondora – which provides investors and accepts loans to over 37 countries in Europe. Australians, check out SocietyOne

d. Invest in Real Estate

The biggest barrier to real estate is it requires a lot of upfront capital to get started and like stocks requires a bit of luck with timing. Thus, if you are living paycheck to paycheck, investing in real estate may be out of your reach.

I got lucky and had an advantage. My parents put me through university and so I didn’t have a debt to pay off. After working about 5 years I was also able to save and buy into the market at a time when the real estate market in Calgary wasn’t inflated yet.

At the time the Oil & Gas industry was just booming and I bought at the right time, just before the housing market skyrocketed. A few months later, I came across a great deal on a pre-build townhouse. A pre-build is something that has not been developed and built yet. The builder sells you at the market price at the time and you are only required to put down a minimal lump sum to lock in the price. 

For my investment, it was about $5,000 deposit I had to put down at the time and then another lump sum 6 months down the road.  You then wait until the townhouse gets built. During this time, it is your opportunity to get your finances in order so that in a few years you will have the funds to close on your purchase.  As such, I was able to lock in a deal.

By the time it was ready to close, the economy in Calgary was hot. I was able to sell my first condo and made a decent down payment to put down on my second purchase.

A couple of years later, I started to notice and feel the Calgary economy slowing down. At that time, I was also wanting to quit my job and take some time off indefinitely to travel and explore other options to earning an income outside of the office.

In reflecting on where I was at and other factors at the time, I trusted my intuition to sell the place. Again, I got super lucky. It was a seller’s market then and I was able to catch the real estate wave at its highest craze in Calgary before it started to go back down. A couple of years later, I wanted to re-invest into the real-estate market. I knew Calgary wasn’t the place to do it and was looking to another city. I saw the potential in Toronto so re-invested back into real-estate as it made sense to me.

If you have a lump sum savings and can invest in real estate, I believe it is a fantastic way to hedge against inflation and to trade up over time. But before you jump into any real-estate investments get clear on:

  • Why you want to invest?
  • What do you plan on doing with your real estate purchase? Will you rent it out? Will you live in it? Will you live in it and also rent out a room?

Be on top trends and be aware of what is going on in the economy. Do a cost/benefit analysis.

  • Is it worth it to put a huge lump sum down and hold it for ‘x’ amount of years?, or;
  • Will you be better off living somewhere, where rent is cheap and diversifying your portfolio?

For any investment property, be sure to calculate the property’s potential for return on investment. The property needs to be income generating. This can be found by dividing the property’s net operating expenses by its purchase.


What if I don’t have the capital but still want to invest in real estate what would you suggest?

See if you can get a friend or two who are also interested in investing in real estate and pool your money together. However, ensure you get a lawyer to draw up an agreement between all parties where you define your terms of agreements upfront to avoid any bad blood in the future.

Beyond this, I cannot provide any more tips on how to invest in a property as the real estate landscape has changed so much. I would encourage you to do your own research and talk to people who are in the industry.

there is one other way you can ‘invest’ in real-estate. You can purchase REITs (Real Estate Investment Trusts), as part of your investment portfolio. Essentially you’ll be owning shares of REITs that own real-estates that generates income and collect dividends.

At the end of the day, you have to be proactive in keeping yourself up to date with what’s going on in the world and in managing your money. To quote my dad, if you are not taking responsibility to manage your finances, who will? 

Photo by Fabian Blank on Unsplash