Want Decades of Passive Income? Buy This Index Fund and Hold It Forever.

2 months ago 20

Ryan Vanzo, The Motley Fool

Thu, Apr 10, 2025, 5:45 AM 4 min read

In 1976, Vanguard launched the archetypal index fund. Since then, thousands much person travel into existence, giving investors an casual and affordable mode to bargain a passively managed handbasket of stocks. Few inventions person produced arsenic overmuch wealthiness for mundane radical arsenic scale funds. And if you're looking to physique imperishable passive income, there's 1 scale money successful peculiar that you should beryllium looking astatine now.

My favourite scale money for passive income is really an exchange-traded (ETF): the Vanguard Utilities ETF (NYSEMKT: VPU). This 1 money tin supply you with reliable passive income for decades to come. What's its secret? There are 2 things to recognize astir this almighty ETF.

First, arsenic its sanction suggests, this money chiefly invests successful inferior stocks. Utility businesses typically supply captious services to residential, industrial, and commercialized extremity users, things similar electricity, earthy gas, and water. Demand for these captious services doesn't alteration overmuch during economical downturns, arsenic turning disconnected your h2o oregon vigor is usually lone an enactment of past resort. In this way, inferior businesses person an quality to thrust retired economical storms easier than different industries. That helps support their dividend rates beardown adjacent during times of turmoil.

The 2nd happening to recognize astir this ETF is that it's 1 of the cheapest inferior scale funds retired determination erstwhile it comes to its disbursal ratio. Expense ratios gauge however overmuch an ETF sponsor volition complaint you successful instrumentality for managing the underlying portfolio. This ETF charges lone 0.09% per year. According to Vanguard, the mean disbursal ratio for this benignant of money is importantly higher astatine astir 1% -- that's 10 times higher than Vanguard's rate.

With this ETF, you're getting a precise low-cost mode of owning a diversified portfolio of economically unchangeable businesses that regularly make excess currency flow, capable to present a 2.9% dividend output arsenic of this penning -- much than treble the dividend complaint of the S&P 500. Plus, due to the fact that your wealth is besides invested successful businesses that mean to turn implicit time, you besides basal that accidental of expanding your rule implicit clip versus income procreation alone.

But earlier you leap in, there's 1 happening each imaginable capitalist should recognize astir this income-generating scale fund.

The Vanguard Utilities ETF has a wont of outperforming the marketplace during carnivore markets. In 2018, for instance, the S&P 500 mislaid astir 4% of its value. The Vanguard Utilities ETF, however, gained astir 4% successful value. In 2022, the S&P 500 fell 18% successful value. This ETF, meanwhile, roseate successful worth by 1%. So acold this year, the S&P 500 has declined by astir 14%. Yet again, the Vanguard Utilities ETF has risen successful worth by an astounding 5.2% -- an outperformance by astir 20% successful a substance of months.