This ETF-Only Portfolio Can Make You $1,000 in Monthly Passive Income

$1,000 a month in passive income is a great starting point if you are aiming for full financial independence. This amount already gives you plenty of flexibility. A frugal person can get by on that amount if they have housing covered. If not, this is still a significant amount that you can use to help pay off your mortgage. You could also reinvest and compound for even more passive income.

The question is, how much do you need, and what yield should you target?

If we look at the highest-yielding solvent ETFs that pay monthly, they yield 10%-plus if you’re willing to forego significant upside potential. If you still want good exposure to the equity market’s upside, you’ll get around 3-5%.

The highest-yielding monthly dividend ETFs are usually made up of leveraged covered-call funds, bonds, and BDCs. Expense ratios in this cohort are higher. As such, it is a good idea to have some passive ETFs alongside these to lower costs and add more cushion.

The following three ETFs have a blended yield of 6.89%, so you’d need $174,165 if you were to invest equal amounts in all three.

WisdomTree U.S. High Dividend Fund (DHS)

WisdomTree US High Dividend Fund (NYSEARCA:DHS) tracks a rules-based index that starts with the broad WisdomTree U.S. Dividend universe, keeps only companies that have paid regular cash dividends in the trailing 12 months, and then selects the top 30% by dividend yield.

It also excludes the top 5% of dividend payers if their composite factor scores rank in the bottom half.

The portfolio is mainly focused on cash cow businesses, and holdings are weighted by the dollar amount of dividends each company is expected to pay in the coming year, so firms with the largest absolute cash payouts get the biggest slices.

Plus, individual names are capped at 5% and sector weights are capped at 25% (except real estate at 5%), which stops any single stock or group from dominating the basket.

DHS comes with a 5.41% yield paid monthly. It has a 0.38% expense ratio, meaning you pay $38 per $10,000.

NEOS Nasdaq-100 High Income ETF (QQQI)

NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI) yields very high dividend yields, and it does so while giving you some good upside. QQQI marries full exposure to the Nasdaq-100 with an options overlay.

The ETF owns every stock in the Nasdaq-100 in a cap-weighted fashion, so the portfolio looks familiar at first glance. The uniqueness here is the layer of listed NDX call options that NEOS writes and, at times, buys. The managers sell calls on the index to harvest premium, but they also reserve the right to purchase calls when their model signals better upside participation.

Gains and losses on these options are taxed, but NEOS supplements this with year-round tax-loss harvesting on both the equity and options books. As a result, you get a 14.65% yield, paid monthly. The expense ratio is 0.68%, or $68 per $10,000. The drawback is that you get less upside in bull markets.

The 30-day SEC yield is much lower, though this is due to most of the distributions being classified as return of capital. This is actually a good thing as it lowers cost basis and defers tax until shares are sold.

iShares Flexible Income Active ETF (BINC)

iShares Flexible Income Active ETF (NYSEARCA:BINC) is great if you are looking to hedge the stock market’s volatility and get good yields in return. A team led by BlackRock’s Global CIO of Fixed Income (Rick Rieder) manages the fund. He manages $2.4 trillion of client assets. BINC’s exposure is almost entirely from bonds and bond-like instruments.

BINC reports 3,255 holdings with the average credit rating at BBB+ (or investment-grade).

Plus, the average bond in the portfolio matures in three to five years, so the fund is not highly sensitive to interest-rate shocks. The 12-month trailing yield is at 6.36%. The 30-day SEC yield is 5.32%. The net expense ratio is 0.40%, or $40 per $10,000.

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