(upbeat music)
- So it says you can make $940 a month in passive income
and it only takes three simple steps.
Yeah, that sounds legit.
(Jeff laughs)
(upbeat music)
What's going on y'all it's Jeff,
welcome back to the channel.
And today we're talking about a topic
that I haven't talked about on this channel
for a hot minute.
(Will Smith laughs)
- Oh, that's hot, that's.
- And that topic is passive income
because we all want to make money
while we are laying by the beach or chilling in the bed
binging out on "Stranger Things" or "The Mandalorian."
Have you seen that Baby Yoda?
He is so dang cute.
By now we all know
that making passive income is not that easy.
You do know that right?
It takes a sizeable investment.
It also takes time to generate dividends
or interest to earn passive income.
Or if you're starting a business
it's going to take time to build the team,
to build the processes where you're making money
on the side without doing a ton of work.
So when I came across this article in Forbes
talking about how you can make $940 a month
in passive income.
It definitely got my attention,
I want to find out why.
And after reading it over
and it sharing that the way to do this
is that you just have to follow three simple steps.
Well, I wanna talk about what these steps are
and also share my thoughts on why
it might not be that simple.
Now, the first thing that you'll notice
about the title of this article, the official title
it's how to invest $100,000 to generate that $940
a month of passive income.
Now, if you don't have $100,000 to invest
don't check out now
because there's still a lot that you can learn
from what I'm going to share in this video.
Because the investment strategy that's outlined
in this article is something that you can do,
Anybody can do.
And you can pull this off in your Robinhood account,
your Webull account, your M1 Finance account
any online brokers for that matter.
The first thing that I wanna point out
with this $940 a month with a $100,000 investment
you still have to be making a pretty salty dividend yield.
(crisp crunches)
That is salty and vinegary.
This large of a dividend yield is not very common
especially right now with interest rates at historic low.
The 10 year treasury right now is 0.86%.
The average dividend yield on the S&P 500
is around 1.6 to 1.7%.
I finally made off Robinhood's cash management product.
It's basically their online high yield savings account
and that's paying a whopping 0.3%.
Robinhood, thanks so much for making me wait so long
to get into that.
0.3%, ooh.
- Ooh!
- So any investment that's paying 11.3%
a 11.3% dividend,
that's definitely going to get your attention.
Side note you can check out my other video
where I talk about a crypto currency savings account
that's paying 8.6%, not quite 11.3
but it's pretty dang close and more than Robinhood.
So how in the world are you able to make
an 11.3% dividend yield.
We're gonna find out by going through the steps
in this article as it outlined.
Right, the first step is pretty easy.
Step one is open a brokerage account.
Now, if you already have a brokerage account
you can go ahead and execute the strategy
in whatever account you already have.
But if you don't have a brokerage account,
what you do need one it is required
to execute this strategy
because we are purchasing a security traded
on the US stock exchange.
If you're not sure where to go,
don't worry, I gotcha.
I'll have a link in the description to my blog
to outline some of the best online brokers
that you can open accounts a day.
If you wanna do this strategy
and also get some free money in the process,
then also check out Webull.
Right now they got a pretty sweet promotion
that will give you up to three free stocks
by opening an account and depositing
a very small amount with them.
Once again I have a link in the description
for Webull, check them out, open account,
deposit some money, get free stocks.
Now the article also includes transferring that $100,000
as part of step one.
Obviously, if you don't have that, we're not doing that.
But if you are opening an account with the online broker
like a Robinhood, you know what that 0.3 cash management
or Webull where you're getting your free stock
you might not have that $100,000
but you can transfer a small amount
and still execute on this strategy.
Okay, step two is buying a closed end fund.
Now, the article isn't that generic where it just says
buy any closed end fund.
It does give you a very specific recommendation.
The closed end fund that it tells you to buy
is the Gabelli Equity Trust fund.
The symbol on this is GAB.
At the time of this recording the fund was trading
at $5.32 per share.
Now, this is part of the three steps
that I do have a particular issue with.
Not so much the Gabelli Equity Trust fund,
more of the fact that it's a closed end fund.
I just don't wanna interfere the steps here
we're on step two, we got one more to go.
But I'm gonna share what my beef
with closed end funds are here in a second
and trust me, you're gonna wanna wait for that.
So if you thought, step one and step two were easy,
well step three actually is the easiest.
Step three is wait two months.
Sit back and wait.
So the way the author breaks this down.
We've got the $100,000,
now based off of the price
of the Gabelli Equity Trust fund
at the time the author wrote this,
he's able to pick up 18,867 shares.
The dividend per share is $0.15.
So that means every single quarter, every single 90 days
you're going to make $2,830.05,
or just over 11,200 for the year or monthly
that comes out to just over $940 per month.
And in case you're curious, this is what $940 looks like.
Gosh, what if the dividend cheque smell
just as good as cash?
You definitely have to appreciate the title,
the headline of that article,
how to make $940 a month, passive income
with a $100,000 invested.
When it breaks down the steps and you start seeing
like how simple it is
like, oh yeah, like I can do this anybody can do this.
Anyway if you have $100,000.
As I mentioned I don't really have the issue
with the actual investment the Gabelli Equity Trust
closed end fund.
What I have more of an issue with
is closed end funds in general.
Because if you don't know anything about them
and you actually take $100,000
and put it into a closed end fund,
or if you're just starting to invest
for the first time and you're taking all your money
and putting it into a closed end fund
and you don't know how it works.
Well you might look at a statement one day
or open up your investment app on your phone
and see, what in the world happened to my money?
- What the hell?
- And while closed end funds have similar characteristics
as a mutual fund and an ETF.
They're just a completely different beast.
So the first issue that I have with closed end funds
is that there are so dang volatiles
which means that their stock price, the share price
is going all over the place.
And why that's a big deal
that anytime you have an investment
that is paying such a high dividend,
most investors equate that.
They start thinking of that as more of a bond,
more of a secure type investment.
And trust me, that is not what a closed end fund is.
One of the main reasons why closed end funds
are so volatile is because the way
that share prices are determined.
With mutual funds and ETFs,
if somebody is buying more shares,
if an investor, if you are buying more shares
of a mutual fund or ETF,
the issuing company just issues more shares.
But whenever a closed fund comes to market,
whenever it issues for the first time
however many shares are made in that initial offering
that is it.
So whenever you are buying and selling,
they're not making new shares,
they're not redeeming new shares.
You're basically just buying and selling
from other people that own the exact same closed end fund.
The volatility on closed end funds is not specific
to just the Gabelli Equity Trust fund.
I found this article on US news
the headline, the top seven closed end funds for 2020.
And I just picked one of the random ones
that it recommended.
One of those is the Aberdeen Total Dynamic Dividend Fund.
And right now this is trading at about $7.30
with a dividend yield of 9.2 or 9.3%
at the time of this recording.
Now if you look at this closed end fund
for the last six months or a year,
I mean, you're not seeing a ton of volatility.
If you go to Google Finance, type in the symbol, AOD
and then pull up the max chart on this thing,
you can see what I'm talking about.
Back in 2007, this closed end fund
was trading at $42 a share,
right now is trading at seven.
There have been no dividends splits or stock splits
along the way.
That's how much the share price has dropped.
The Gabelli Equity Trust fund isn't much different.
If you go to Google Finance, you can see
that back in 1997, it was trading at just over $11 a share.
Do you remember the share price now?
It's $5.30.
So it's down about 50% over the last 20 years.
Once again, no stock splits,
like that is what the price has dropped.
But Google Finance only goes back to 97.
The Gabelli Equity Trust fund actually issued
back in 1988 and the issue price was $8 per share.
So imagine buying an investment, buying an IPO
that was $8 a share in 1988
and now, 2020 it's trading at $5.30,
but you're still getting that dividend.
Now, one of the main reasons why closed end funds
are so volatile in price and why they're able to pay
such a high dividend yield is because of leverage.
They are borrowing a lot to buy more investments
that are paying a high dividend yield
so that they can pay their investors a lot.
So the one thing you have to consider is that
if this fund is paying 11.3% on its dividend yield,
that is the net payout,
meaning that that's what investors make,
that's what you and I make if we buy this fund.
But this fund takes money to run it.
You also have people, the manager, the CEO,
all the top executives that are running
and taking care of the team that are running this fund.
Like they have to get paid too.
So to cover all of their costs, they have to generate
well and above, 11.3% return
so that they can make money and keep the lights on.
So that means that they are taking
a considerable amount of risk.
Because if you're making north of 11%
you're not buying the dividend blue chip stocks
that grandma was comfortable with.
- Burglar would not wanna see when he breaks
into a house?
(buzzer beeping)
Rob?
- Naked grandma!
(dramatic music)
- I get it leverage isn't always a bad thing.
I understand as a business owner, as an entrepreneur,
that if you're going to borrow money
at a smaller interest rate, and you can invest that
and make a lot more, that is a win-win.
It's just important as you, the investor
you understand how they are generating such a high return.
As I mentioned, this fund is about a 25% leverage,
but if you're looking at another closed end fund
that could be paying a lot more,
you want to know how much they have leveraged.
And I'm not the only one that feels this way.
Fellow YouTuber and personal finance expert,
Joseph Hogue, had this to say about leverage
on closed end funds.
- Most closed end funds use huge amounts of leverage,
borrowing to invest more than the assets
to boost those returns.
- And the third and final reason why I have such a beef
with closed end funds is that as a former financial advisor,
especially early on in my career,
I saw these things sold.
I mean, not as bad as "Boiler Room"
- You couldn't close a (beep) window.
- But you have to consider how these things were sold.
I can remember that I would always get these offer sheets
that would give you all the features
and benefits of all these different closed end funds.
And you would see what are their holdings now,
what's the dividend that they're going to pay,
what are the projections on how this thing's
gonna perform over the next three to five years.
But what was also included
on this offer sheet was how much you got paid
for every single share that you sold.
So if you knew, if a client bought $5,000
$10,000, $100,000 of this closed end fund,
you knew exactly what your commission was going to be.
I can remember walking through the brokerage firm
that I started with and hearing other brokers on the phone.
And they were pitching these things
like they were the greatest thing since sliced bread.
But the part that I really did like
is whenever the client would buy these
they wouldn't see that commission,
they wouldn't see any of those upfront costs,
all they would see was the dividend yield.
But remember the Gabelli Equity Trust fund
how it issued at $8 a share back in 1988?
Well, using that example, if the client paid $8 a share
and they're getting that dividend six months, nine months
maybe a year later.
Now they see that share price is dropped
from $8 down to $7 to $6, $5.30.
It typically never got back to that original issue price.
And sure buying any investment, that's paying you a 6%
7%, maybe 8% dividend yield, like that's attractive.
And maybe you're okay with the fact that
the price drops a little bit.
But if you're comparing an investment
that back in 1988 issued at $8 per share
and today is trading at $5.30 per share.
And if you compare that to any dividend stock
and maybe that dividend is only paying 2% 3% or 4%,
but you've seen that stock appreciate over time.
That's how you make money in the market.
It's not always just about the dividend,
what you wanna see is appreciation and a dividend yield
on top of that.
That's what you call as having your cake and eating it too.
Now I know in this case
like we're not buying this thing as an IPO
when it issues like it's already been in the market
for 30 plus years.
And right now it is trading at about it's low.
I think the lowest it's ever been is in that $4 range.
So this is something that I would feel
more comfortable with buying now,
But if you're ever being pitched closed end fund at issue,
you gotta stay away.
But yeah, this is something right now,
if you're looking for a decent dividend.
Would I put $100,000 in this?
Absolutely not.
But full disclaimer, full disclosure,
I have a Robinhood account
that I'm doing for this Grow Your Dough Challenge.
That account has a balance right now of about $200,000
and I did just pick up some of this fund
and I just put about $5,000.
So would I put $100,000 in?
I might do $100,000 if I had say 2 million to invest.
But if I had a million, would I put $100,000?
No.
If I had $200,000, would I put $5,000 in?
Yes, I would because I did.
So lesson learned closed end funds aren't always horrible.
Not, not always.
It definitely depends on when you get in.
And even though I just, that this particular fund,
this closed end fund, is trading near its all time low.
Well, it's all time low prior to here recently,
wasn't that low.
So it could go below the $4 per share.
And I do remember and I couldn't find the name
of this closed end fund, but I mean,
I think this thing ended up going kaput.
I mean the thing just went bankrupt.
That closed end fund was I think it was mostly invested
into financial stocks, it's going back
to the 2008 financial crisis
when this thing just bombed.
So they are risky, they are not a bond.
They are kinda like a mutual fund, kinda like an ETF
but they're just a little more harder to understand.
So they're kinda like a mutual fund, kinda like an ETF
but they're just a little bit more difficult to understand.
Kind like that relative that always makes a big deal
about any family function.
Just like what's the point.
Like don't even invite them, they're just annoying.
All right, if you found this video useful, helpful
or entertaining, go ahead and smash that like button,
hit subscribe, hit that notification bell,
so that, you know the next video it's on its way
Also be sure to take advantage of that special offer
that Webull is offering right now.
This is a limited time offer.
This is going to the middle of November, 2020,
depending on whenever you're watching this.
As of right now, you get three free stocks
if you open the account with them
and then deposit some money.
Don't worry it's not $100,000.
There'll be a link in the description.
If you do click that link and then sign up through my link
I do get compensated, I do appreciate
anybody goes through any of the links
I offer here on the channel.
Our (mumbles) is Jeff Rose reminding you that
it's your money, it's your life
and only you can make awesome.
Till next time, peace.
Poof.