Investment guru Warren Buffett once said, "Find a job that you would still do even if it doesn't pay you."
Even if you are fortunate enough to have found a job that you love, like Warren Buffett, it surely helps to have a stable cash flow from your investment portfolio.
Building a passive income is similar to baking croissants. You keep adding layers of small passive incomes. Each layer is weak, but as you add more layers, the croissant becomes tastier.
Assume I set aside $14,000 from unexpected annual bonus payments or diligent savings. Then, I could turn this capital into an additional $70 of monthly passive income. All I need to do is to find an investment yielding approximately 6%.
I agree that $70 wouldn't buy me much, especially with the rising inflation lately. However, this can certainly be another layer in my retirement 'baking.'
Vanguard Australian Shares High Yield ETF (ASX: VHY)
While there are plenty of ASX dividend shares to choose from, Vanguard Australian Shares High Yield ETF can be a good start for any income-focused investor for many reasons.
First, the VHY ETF is an exchange-traded fund (ETF) that offers investors exposure to a diversified portfolio of high-yielding ASX shares. The company aims to achieve sector diversification by limiting the proportion invested in any one industry to 40% of the total ETF and in any one company to 10%.
This means the ETF shows less volatility than other shares or ETF options, ideal for investors looking for stability.
Secondly, Vanguard is known for low-cost ETFs, and the VHY ETF is no exception. The ETF charges an annual management fee of 0.25%, making it a cost-efficient way to invest in the broader market.
Lastly, the ETF delivered a total return of 8.51% in the last 5 years and 7.14% in the last 10 years (as at 30 June 2024), including capital appreciation and income growth. This indicates that although the ETF is designed to maximise income for its investors, it still delivers some growth in its invested capital.
How to generate an additional $70 a month
In the past year, the VHY ETF unit price has increased slightly by 2.79%.
The VHY ETF unit price closed Wednesday at $70.10.
At this price, I could buy approximately 200 units using the hypothetical seed money of $14,000.
The total distribution over the past 12 months was $4.24 per unit, implying a 6% yield and approximately $70 a month for $14,000 invested. I would happily invest in this ETF for stability and income.
