Inherited $400,000? Here’s the Smartest Way to Turn It Into Monthly Passive Income

If you’re fortunate enough to inherit $400,000, it may be tempting to spend that money on cars and vacations. However, the smart-money move is to invest the funds wisely and plan for your financial future.

One approach is to invest that $400,000 in exchange traded funds (ETFs) that provide passive income every month. That way, you can reinvest the cash distributions and take advantage of the compounding effect. So now, it’s time to reveal four funds that unlock monthly income opportunities so you can turn your inheritance into a cash-producing machine.

SPHD: A Reliable Pick for Low Volatility

$400,000 is a whole lot of money to inherit and invest. Therefore, your first priority shouldn’t be maximizing your monthly dividends. Instead, it should be mitigating your risk so you don’t lose all of that money.

When safety and reliability are your top priorities, the Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA:SPHD) is a solid pick. This fund has 52 stocks in its holdings, all carefully selected from the S&P 500 large-cap stock index.

The SPHD ETF specifically chooses stocks “that historically have provided high dividend yields and low volatility.” Examples include Pfizer (NYSE:PFE), Realty Income Corp. (NYSE:O), Verizon Communications (NYSE:VZ), and Altria Group (NYSE:MO).

These companies are known for providing consistent dividend payments, and their stocks typically aren’t volatile. Furthermore, the Invesco S&P 500 High Dividend Low Volatility ETF features a 12-month distribution rate (i.e., a forward annual dividend yield) of 3.44%.

Plus, the SPHD ETF pays out its distributions on a monthly basis. With all of that in mind, you could take $150,000 of your inherited $400,000, put it into the Invesco S&P 500 High Dividend Low Volatility ETF, and sleep soundly at night.

Stay in the Safe Lane With DIVO

With $400,000 to invest, you’ll have a large account and there’s no need to drive in the fast lane. Instead, you can stay in the “safe lane” but still get a passive income stream with the Amplify CWP Enhanced Dividend Income ETF (NYSEARCA:DIVO).

Much like the SPHD ETF, the Amplify CWP Enhanced Dividend Income ETF seeks to reduce share-price volatility while providing exposure to high-quality dividend-paying companies. Moreover, like the other funds mentioned today, DIVO puts cash distributions into your account on a monthly basis.

The Amplify CWP Enhanced Dividend Income ETF has 24 stocks in its holdings, and you’ll see plenty of large-cap sector leaders in there. Among the top holdings in the DIVO ETF are Microsoft (NASDAQ:MSFT), RTX/Raytheon Technologies (NYSE:RTX), Caterpillar (NYSE:CAT), Visa (NYSE:V), and Home Depot (NYSE:HD).

Again, we’re choosing safety first and then aiming for good yield. Since the Amplify CWP Enhanced Dividend Income ETF invests in great companies and features an impressive 4.73% annual distribution rate, it checks all the right boxes. Thus, it would make sense to allocate $150,000 of a $400,000 inheritance toward the DIVO ETF.

Accelerate Your Yield With Single-Stock ETFs

It’s wise to dedicate $300,000 of your $400,000 inheritance toward diversified low-volatility funds like SPHD and DIVO. If you do that, then you can invest the remaining $100,000 in ETFs with greater risk but also higher yields.

To that end, YieldMax offers a wide variety of ETFs that each focus on a single stock instead of a diversified basket of stocks. Typically, these YieldMax ETFs derive monthly income from U.S. Treasury bonds and sophisticated options-trading strategies.

One way to reduce the risk is to stick to YieldMax ETFs that focus on established large-cap companies. For example, the YieldMax AAPL Option Income Strategy ETF (NYSEARCA:APLY) indirectly derives income from Apple (NASDAQ:AAPL) stock.

Currently, the APLY ETF advertises an annual distribution rate of 26.99%. This fund shouldn’t be excessively risky as Apple is a reliable blue-chip business with staying power. So, you could invest $25,000 of your $400,000 inheritance in the YieldMax AAPL Option Income Strategy ETF.

A reasonable plan would be to pick four single-stock ETFs with a focus on high-confidence companies. Then, you could allocate $25,000 toward each of the four funds you picked.

A Mixed-Risk Approach

APLY is just one example of many monthly-paying single-stock ETFs you can choose from. Here’s a summary of other funds in this category, and while you explore them, you might think about picking your four favorites:

• The YieldMax AMZN Option Income Strategy ETF (NYSEARCA:AMZY); based on Amazon (NASDAQ:AMZN) stock; 47.82% annual distribution rate
• The YieldMax NVDA Option Income Strategy ETF (NYSEARCA:NVDY); based on NVIDIA (NASDAQ:NVDA) stock; 74.99% annual distribution rate
• The YieldMax GOOGL Option Income Strategy ETF (NYSEARCA:GOOY); based on the stock of Google parent company Alphabet (NASDAQ:GOOGL); 32.9% annual distribution rate
• The YieldMax MSFT Option Income Strategy ETF (NYSEARCA:MSFO); based on Microsoft (NASDAQ:MSFT) stock; 34.9% annual distribution rate
• The YieldMax JPM Option Income Strategy ETF (NYSEARCA:JPMO); based on JPMorgan Chase (NYSE:JPM) stock; 39% annual distribution rate
• The YieldMax AMD Option Income Strategy ETF (NYSEARCA:AMDY); based on Advanced Micro Devices (NASDAQ:AMD) stock; 68.07% annual distribution rate
• The YieldMax DIS Option Income Strategy ETF (NYSEARCA:DISO); based on Walt Disney (NYSE:DIS) stock; 38.55% annual distribution rate
• The YieldMax XOM Option Income Strategy ETF (NYSEARCA:XOMO); based on Exxon Mobil (NYSE:XOM) stock; 38.04% annual distribution rate

Just to provide an idea of what your overall plan might look like, you could invest $150,000 in SPHD, $150,000 in DIVO, and $25,000 each in APLY, MSFO, DISO, and XOMO. All in all, you can mix low-risk ETFs with a handful of higher-risk ETFs to turn your inherited $400,000 into a fairly reliable monthly income-producing machine.

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