Passive income is a dream of many. Who doesn’t want to make money while sleeping?
But building a passive income stream isn’t as easy as it sounds. You need the right investments. You also need the right strategy.
Do you want to get started? This ETF is one of the best ideas for passive income.
Do this first to create passive income
There are a few things you need to do to generate a passive income stream. The first is to have enough money to create a passive income stream. After all, it takes money to make money.
For example, let’s say you want to earn $1,000 per month in passive income. That’s $12,000 a year. If you earn a 5% return on your investments, you’ll need $240,000 to generate that kind of income.
Don’t have $240,000? That is all right. Your first goal should be to acquire a sizable nest egg, which can then be used to generate the passive income you desire. The best way to do this is through automated investing. This is perhaps the greatest investment trick there is. That’s because putting money away on a regular basis is one of the hardest things to do in reality.
What automated investing does is take the manual decisions out of the equation. For example, you can set up recurring investments for $100 per month. This way, every month, $100 is automatically deposited and invested for you. You can increase or decrease this figure whenever you want. But the key is to get the wheels turning, and that means setting up a recurring investment schedule that happens automatically.
Of course, you also need to find an investment into which you can put this money. For this, I would like to introduce my favorite passive income ETF of all time: the Vanguard Utilities Index Fund ETF (NYSEMKT: VPU).
Two reasons why I love the Vanguard Utilities ETF
The Vanguard Utilities ETF is perfect for creating and maintaining a passive income stream. As the name suggests, the fund invests in utilities. These companies are known for their stability. After all, even during recessions, most people do not cut back on their water or heating consumption. While these companies may lag the market during strong bull markets, they provide a level of consistency that can help you maintain confidence in your automated investing scheme.
For example, in 2022 the S&P500 lost 18% of its value. The Vanguard Utilities ETF, meanwhile, has won about 1% in value. If you want to make sure you never have to worry about putting more money into the market again, this ETF takes a lot of the stress out of your decision-making.
But don’t think this ETF is only good during bear markets. Since the fund’s launch in 2004, it has generated an annual return of approximately 9.38%. That’s a great return for long-term wealth building. And with an expense ratio of just 0.1%, you can keep 99.9% of your money year after year.
Overall, the Vanguard Utilities ETF gives you the best of both worlds: downside protection during bear markets, with ample upside potential over the long term. Not only can this one fund help you build the passive income stream of your dreams through automated investing, it can also help you preserve that wealth once it’s generated.
Should you invest $1,000 in the Vanguard World Fund – Vanguard Utilities ETF now?
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Do you want passive income for decades? Buy this ETF and hold it forever, originally published by The Motley Fool
