With interest rates starting to come down following the Federal Reserve's decision to cut rates, now could be a great time to consider investing some extra cash in the Vanguard High Dividend Yield ETF (VYM 0.17%).
This Vanguard fund holds positions in over 500 stocks, many of which are in the S&P 500, but pay yields significantly higher than the index average of 1.14%. The prospects for lower interest rates should make this fund's high yield more attractive.
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A low-risk option to boost your passive income
The fund's trailing dividend yield is 2.49%, which is more than twice the yield of the S&P 500. As a result, a $10,000 investment would have earned $249 in income over the last year. Some of the top holdings in this ETF include a nice mix of technology, healthcare, financial services, and consumer goods -- similar to the diversification you would get with an index fund. The fund's top position is currently held by Broadcom, followed by other top dividend stocks, including JPMorgan Chase, Walmart, Home Depot, and UnitedHealth Group.
Not all these stocks pay high yields, but the fund blends the right mix of quality stocks to control risks while offering a balance of growth and high yield.
NYSEMKT: VYM
Key Data Points
Altogether, there are currently 566 stocks in the ETF, which, like other Vanguard products, charges minimal fees. The expense ratio is just 0.06%, meaning the fund charges a fee of $6 for every $1,000 invested.
You're not going to outperform the S&P 500 with the VYM ETF. However, this is an excellent way to boost your passive income without having to pick winners and losers among individual stocks. For example, suppose you've been considering buying a stock like Coca-Cola for its high yield of 2.82%. In that case, you may prefer to avoid the risk that something goes wrong with Coke's business and instead invest in this highly diversified ETF, which pays a comparably high yield.
