Investing is hard. It can take decades of saving to reach a nest egg that approaches or exceeds $1 million.
And yet, more often than ever before, people are reaching this incredible milestone -- only to ask themselves: Now what? How do I transition from growing my nest egg to living off it through a steady income stream? Is it realistic to even think this is possible?
The answer is yes, it is possible. Here's one way to do it using just three Vanguard exchange-traded funds (ETFs).
Image source: Getty Images.
1. Vanguard High Dividend Yield Index Fund
For starters, there's the Vanguard High Dividend Yield Index Fund (VYM 0.69%). This fund is one of Vanguard's most popular and widely held ETFs. It boasts an excellent performance history stretching back nearly 20 years. During that time, it has generated a compound annual growth rate (CAGR) of 9.3%.
NYSEMKT: VYM
Key Data Points
What's more, its current dividend yield of 2.3% and budget-friendly expense ratio of 0.04% make it a hit with investors seeking income and low fees.
The fund boasts over 560 holdings spread across numerous sectors, including financial services (21%), technology (20%), healthcare (12%), and consumer staples (8%).
Given its diverse mix of sectors and rock-bottom expense ratio, this fund is a wise choice to form the cornerstone of an income-oriented portfolio. Investing $425,000 in this fund would yield approximately $9,600 in annual dividend income.
2. Vanguard Energy ETF
Next, there's Vanguard Energy ETF (VDE +1.65%). This fund focuses on energy sector stocks. Begun in 2004, it boasts an impressive lifetime CAGR of 8.2%. It's also arguably the best-performing Vanguard ETF year to date, with an exceptional 25% return so far in 2026.
NYSEMKT: VDE
Key Data Points
The fund holds over 100 stocks, over 98% of which are based in North America. Top holdings include oil and gas majors such as ExxonMobil and Chevron, energy services providers such as Baker Hughes, and energy infrastructure companies such as Kinder Morgan.
Vanguard Energy ETF boasts a 2.5% dividend yield and pairs it with a very affordable 0.09% expense ratio -- making this fund one to consider for any income-oriented investor.
While the fund's solid performance, low fees, and respectable dividend yield make it quite appealing, its singular focus on the energy sector could present diversification concerns for some investors.
Investing $400,000 in this fund would yield approximately $10,080 in annual dividend income.
3. Vanguard Real Estate ETF
Last, there's the Vanguard Real Estate ETF (VNQ 0.10%). Started in 2004, this fund focuses on the real estate sector. In particular, the fund has broad exposure to U.S. real estate investment trusts (REITs). These companies serve as the landlords to a vast array of commercial enterprises, including data centers, logistics, and healthcare facilities.
NYSEMKT: VNQ
Key Data Points
Top holdings include Welltower, Prologis, and American Tower Corp. Nearly all of the fund's holdings are headquartered in the United States (99%), and a vast majority are large-cap stocks (75%).
During its 20-year run, the fund has posted a solid CAGR of 7.6%. In addition, the fund has a stout 3.6% dividend yield and an expense ratio of 0.13%. The fund boasts the highest dividend yield of the three funds covered here, making it very appealing to income-focused investors. Yet, on the other hand, REITs tend to suffer in a high-interest-rate environment, meaning investors must remain vigilant about that risk.
Investing $275,000 in this fund would yield approximately $10,000 in annual dividend income.
The big takeaway for investors
Granted, to build an annual dividend income stream of $30,000, an investor will need a large nest egg. In fact, if using the figures cited above, someone would need about $1.1 million -- and not every investor has a portfolio of that size.
| Fund Name (Ticker) | Dividend Yield | Investment | Annual Dividend Income |
|---|---|---|---|
| Vanguard High Dividend Yield Index ETF (VYM) | 2.26% | $425,000 | $9,600 |
| Vanguard Energy ETF (VDE) | 2.52% | $400,000 | $10,080 |
| Vanguard Real Estate ETF (VNQ) | 3.63% | $275,000 | $10,000 |
| Total annual dividend income | $29,680 |
Dividend yield source: Google. Investment figures and income are hypothetical amounts chosen by the author.
Nevertheless, any investor interested in generating income from their portfolio would be wise to consider these Vanguard ETFs. They have a long and successful track record, offer exposure to many sectors of the economy, and charge low fees.
