The iShares S&P 500 ETF (ASX: IVV) is one of the most popular and effective ASX-listed exchange-traded funds (ETFs). It has been an excellent option for delivering capital growth, though it's not known for passive income.
The fund is invested in many of the largest and most profitable US companies such as Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, Meta Platforms, Tesla and Berkshire Hathaway.
Investment performance has been exceptional, though past performance is not a guarantee of future returns, of course.
Over the past five years it has returned an average of 14.1% per year and in the past decade it has returned an average of 15.2% per year. In the past three years, it generated an average return of 17.2% per year.
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Great at building wealth
I think any investment that can compound wealth at a faster rate than 10% per year is very attractive.
Imagine if it could continue to deliver returns of an average of 12% per year from here? I've chosen a return rate materially below what it has achieved over the last 10 and 15 years. If it returned 12% per year in that time, a $1,000 investment per month would become $1 million in around 20 years.
Allocating more money (such as $2,000 per month) to the IVV ETF could help create $1 million faster than 20 years, or generate a much stronger level of wealth after 20 years.
How I'd create passive income from the IVV ETF
The ASX ETF does have a small dividend yield which some investors may appreciate. But, due to the fact that the dividend yield of the underlying companies is low, the dividend yield of the fund itself is low.
At the end of March 2026, the fund reported a 12-month trailing dividend yield of just 1%. If someone had $1 million, then that dividend yield would only create $10,000 of passive income. I'd be looking for a lot more cash flow than that.
I'd utilise a strategy of selling down a small portion of the amount each year to create that desired cash flow/passive income of $50,000.
For example, in the first year, if I started with a $1 million in IVV ETF, I'd expect $10,000 of dividends and I could sell another $40,000 of the ASX ETF's units after 12 months for a total of $50,000. In other words, we've tapped a 5% passive income 'yield' on the original $1 million balance.
If the fund delivered a total return of say 10% during that 12-month period, the $1 million would grow to $1.05 million (after accounting for the 'withdrawal' of $50,000). In this scenario, we've unlocked great cash flow/passive income and seen the nest egg grow in value.
I'd only want to take out around 4% to 5% each year (or less) because some years may only see a small return, or even declines. So, it's a good idea to save some of the gains for when the market does temporarily decline.
By selling down a portion of a great capital growth investment each year, we can build wealth and generate cash flow.
