I aspire to eventually become financially independent. For me, it's not about the size of my portfolio but whether it's producing enough passive income to cover my basic living expenses. That's leading me to lean into investing in income-generating assets.
Bonds are becoming more critical to my strategy because they produce income and help diversify my stock-heavy portfolio. I'm using exchange-traded funds (ETFs) to invest in bonds. One of my favorites is the Vanguard Total Bond Market ETF (BND 0.22%). Here's why I continue to add to my position in this income-producing bond ETF.
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The Vanguard Total Bond Market ETF provides broad exposure to investment-grade bonds. This fund holds over 11,400 bonds from a range of issuers, including government agencies. Its holdings have an average yield to maturity of 4.3% and an average effective maturity of eight years. As a result, it should provide relatively stable interest income over the medium- to long-term.
These high-quality bonds carry a low default risk. That makes them ideal for generating passive income and reducing a portfolio's risk profile. While bonds will lower a portfolio's upside potential, they help mute the impact of a bad year in the stock market.
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The main reason I'm building a position in the Vanguard Total Bond Market ETF is to collect the relatively stable income it generates. This fund makes monthly distributions of the interest payments from its vast bond holdings. I plan to reinvest that income into additional sources of passive income. That includes continuing to buy more shares of this ETF to increase my income and lower my portfolio's risk profile. I view the Vanguard Total Bond Market ETF as a foundational holding that will help secure my financial future.
