How I'd generate a $4,000 monthly passive income using only ASX ETFs

I would make it rain dividends with these ASX ETFs…

| More on:
A smiling woman with a handful of $100 notes, indicating strong dividend payments

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ETFs can be used by investors to build an income portfolio
  • There are a number of options for investors to choose from that provide generous yields
  • These can be used by investors to generate a passive income

As well as providing investors with exposure to sectors and indices, exchange-traded funds (ETFs) can be used to support certain investment strategies.

For example, if you're not a fan of stock picking but want to build an income portfolio, there are a number of ETFs that you could consider such as the BetaShares S&P 500 Yield Maximiser (ASX: UMAX) and the Vanguard Australian Shares High Yield ETF (ASX: VHY)

The former uses a clever equity income investment strategy over a portfolio of shares comprising the S&P 500 Index on Wall Street to generate a greater-than-average dividend yield from the constituents of the index.

At last count, the BetaShares S&P 500 Yield Maximiser was providing investors with a dividend yield of 9.2%.

Whereas the latter, as you might have guessed from its name, gives investors exposure to a collection of the highest-yielding ASX shares. Though, it is worth noting that it does this with diversification in mind so that you don't end up with a portfolio filled with coal and iron ore miners.

According to Vanguard, it currently trades with a forecast dividend yield of 5.4%.

How much would I need to invest for $4,000 of income?

If you were aiming for $4,000 of monthly passive income from these ETFs, you would need to invest a sizeable sum across them both.

That's because to earn this level of income per month, you'll need to generate $48,000 in dividends over 12 months.

From the Vanguard Australian Shares High Yield ETF, you would need to put a sizeable $444,000 into the fund to earn $24,000 annually ($444,000 * 5.4% = $24,000).

Fortunately, you wouldn't need to make as great an investment in the BetaShares S&P 500 Yield Maximiser ETF right now thanks to its huge yield. An investment of approximately $260,000 would yield $24,000 in dividends annually for investors ($260,000 * 9.2% = $24,000).

That means a total investment of just over $700,000 could potentially yield you $48,000 annually and $4,000 monthly in passive income.

What if you don't have $700,000?

Unfortunately, very few people are lucky enough to have this amount of money free to invest in the share market.

But if you have time on your side, you have the potential to get there by making consistent investments into the share market over the long term.

While past performance is no guarantee of future returns, according to Fidelity, the Australian share market has returned 9.6% per annum over the last 30 years. I would be disappointed if it didn't achieve similar returns over the next three decades.

This means that if you invested $4,200 per annum over 30 years and earned the market return, your investments would have grown to $700,000. After which, you could switch your focus to income, and sit back and watch the dividends flow in!

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended BetaShares S&p 500 Yield Maximiser Fund. The Motley Fool Australia has recommended Vanguard Australian Shares High Yield ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

A couple cheers as they sit on their lounge looking at their laptop and reading about the rising Redbubble share price
ETFs

5 ASX ETFs to buy with $10,000 today

These funds could be worth a deeper dive. Let's see what they offer.

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
ETFs

Why S&P 500 focused IVV ETF isn't as diversified as you might think

Is the IVV ETF a risky investment today?

Read more »

A elder man and woman lean over their balcony with a cuppa, indicating share rpice movement for ASX retirement shares
ETFs

The long game: ASX ETFs to target amidst an ageing population

These funds could be set to benefit from increased demand in global healthcare. 

Read more »

a smiling woman sits at her computer at home with a coffee alongside her, as if pleased with her investments.
ETFs

I rate this ASX ETF as one of the best Aussies can buy

This fund is incredibly high quality. Here’s why it’s so good…

Read more »

The letters ETF on wooden cubes with golden coins on top of the cubes and on the ground
ETFs

These 2 top ASX ETFs look like smart long-term buys after the RBA held rates in July

These could be two of the best ASX ETFs to buy today.

Read more »

A female ASX investor looks through a magnifying glass that enlarges her eye and holds her hand to her face with her mouth open as if looking at something of great interest or surprise.
ETFs

3 exciting ASX ETFs for Aussie investors to watch

Let's see why these funds should be on your watchlist right now.

Read more »

Cubes placed on a Notebook with the letters "ETF" which stands for "Exchange traded funds".
ETFs

How did the iShares S&P 500 AUD ETF perform in FY25?

US shares outperformed ASX shares in FY25 and IVV ETF investors benefited.

Read more »

a man sits back from his laptop computer with both hands behind his head feeling happy to see the Brambles share price moving significantly higher today
Share Market News

Best performing Betashares ASX ETFs over the last year

A review of this ETF provider's best performing funds. 

Read more »