Passive income is a dream of many. Who wouldn’t want to earn money while they sleep?
But building a passive income stream isn’t as easy as it sounds. You need the right investments. You also need the right strategy.
Want to get started? This ETF is one of the best passive income ideas.
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.
Let’s say, for example, you’d like to earn $1,000 per month in passive income. That’s $12,000 per year. If you earn a 5% return on your investments, you’d need $240,000 to generate that type of income.
Don’t have $240,000? That’s all right. Your first goal should be to attain a sizable nest egg that 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 investing trick there is. That’s because stashing away money 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, each month, $100 is automatically deposited and invested for you. You can raise or lower this figure whenever you’d like. But the important thing is to get the wheels turning, and that means establishing a recurring investment schedule that happens automatically.
Of course, you also need to find an investment to put these funds into. For this, I’d suggest my favorite passive income ETF of all time: the Vanguard Utilities Index Fund ETF (NYSEMKT: VPU).
Two reasons I love the Vanguard Utilities ETF
The Vanguard Utilities ETF is perfect for creating and sustaining a passive income stream. As its name suggests, the fund invests in utility businesses. These companies are known for their stability. After all, even during recessions, most people don’t cut back on their water or heating usage. While these businesses can lag the market during strong bull markets, they provide a level of consistency that can help you maintain faith in your automated investment schedule.
In 2022, for example, the S&P 500 lost 18% of its value. The Vanguard Utilities ETF, meanwhile, gained around 1% in value. If you want to make sure you’re never worried about putting more money to work in the market, 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 launched in 2004, it has generated annual returns of around 9.38%. That’s a great return for building long-term wealth. And with an expense ratio of just 0.1%, you get to keep 99.9% of your money year to year.
In total, the Vanguard Utilities ETF gives you the best of both worlds — downside protection during bear markets, with ample upside over the long term. This one fund can not only help you build the passive income stream of your dreams through automated investing, but it can also help you sustain that wealth once its generated.
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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.
Want Decades of Passive Income? Buy This ETF and Hold It Forever was originally published by The Motley Fool
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