How to Turn $500K into $40,000 in Annual Passive Income Without Losing Sleep

If you’ve managed to save up $500,000 to invest in stocks and exchange traded funds (ETFs), pat yourself on the back. You’re in a great position to earn tens of thousands of dollars in worry-free income each and every year.

Two passive income powerhouses are particularly well-suited for investors seeking relatively safe dividends/distributions. With these two high-yield funds, you could generate $40,000 per year from a half-a-million-dollar account. So, let’s look at a pair of ETFs that could help you grow your fortune while you sleep soundly at night.

QDVO: Tech Exposure, Decent Diversification

It might sound risky to take $500,000 and equally divide it among just two funds. However, this plan can make sense if the two funds provide good diversification across well-known stocks.

The first ETF that fits this description is the Amplify CWP Growth & Income ETF (NYSEARCA:QDVO). This ETF generates income from dividends and premium payments from writing/selling call options.

Since the Amplify CWP Growth & Income ETF includes 42 stocks in its holdings, you’ll achieve diversification with just this one fund. Plus, you’ll get portfolio exposure to highly established technology giants like Microsoft (NASDAQ:MSFT | MSFT Price Prediction), NVIDIA (NASDAQ:NVDA), Amazon (NASDAQ:AMZN), and Apple (NASDAQ:AAPL).

While the Amplify CWP Growth & Income ETF emphasizes large-cap technology stocks, it also includes non-tech names such as Visa (NYSE:V), Home Depot (NYSE:HD), Costco Wholesale (NASDAQ:COST), and RTX/Raytheon Technologies (NYSE:RTX). Consequently, your $500,000 portfolio won’t be too tech-heavy with the QDVO ETF.

An added bonus of the Amplify CWP Growth & Income ETF is that it pays out its dividends/distributions on a monthly basis. Hence, there’s no need to wait three full months to start seeing the cash show up in your account.

Getting down to the nitty-gritty, the Amplify CWP Growth & Income ETF offers an annual distribution rate of 9.87%, but also deducts 0.55% worth of operating expenses. This means that QDVO’s expected annualized net yield for investors would be 9.87% – 0.55%, or 9.32%.

RSPA: High Yield, Hundreds of Famous Names

Even though the the Amplify CWP Growth & Income ETF has plenty of benefits, you don’t have to pour an entire $500,000 account into one fund. Instead, you could allocate $250,000 toward QDVO and the remaining $250,000 into the Invesco S&P 500 Equal Weight Income Advantage ETF (NYSEARCA:RSPA).

Generally based on the S&P 500 index, the Invesco S&P 500 Equal Weight Income Advantage ETF has 524 stocks in its holdings. Moreover, it’s not too heavily allocated toward technology or any other sector, as the RSPA ETF places roughly equal weighting on each stock.

Within the Invesco S&P 500 Equal Weight Income Advantage ETF you’ll find technology luminaries like Microsoft, Apple, and Micron Technology (NASDAQ:MU). Yet, you’ll also discover non-technology-focused firms such as PepsiCo (NASDAQ:PEP), Walmart (NYSE:WMT), Chevron (NYSE:CVX), and Bank of America (NYSE:BAC).

Hence, you can massively diversify your portfolio with the Invesco S&P 500 Equal Weight Income Advantage ETF and sleep all night long worry-free. Furthermore, there’s an added benefit with this fund because, like QDVO, RSPA pays out its distributions every month.

The annual distribution rate for the Invesco S&P 500 Equal Weight Income Advantage ETF is 9.13%, which is quite impressive. When we subtract the operating fees of 0.29% per year, the RSPA ETF should provide an expected net annual yield of 9.13% – 0.29%, or 8.84%.

Getting $40,000 Each Year From Two ETFs

Now, let’s do the math with these two terrific funds. For extra-wide diversification, you could put $250,000 into the Amplify CWP Growth & Income ETF and another $250,000 into the Invesco S&P 500 Equal Weight Income Advantage ETF.

Then, your average expected net annual yield would be (9.32% + 8.84%) / 2, or 9.08%. Actually, your yield could be even higher if you reinvest the cash distributions every month, but let’s keep it simple and assume a 9.08% yield for now.

After one year, assuming the two funds don’t reduce their distribution rates, you could expect to receive cash distributions totaling $500,000 x 9.08%, or $45,400. This allows some room for error, as it easily beats your goal of earning $40,000 in dividends/distributions.

Of course, you should monitor the share prices of the two ETFs and not only the distribution rates. After all, you’ll want to see some share-price appreciation to further build your $500,000 nest egg.

There’s no need to lose sleep over this issue, though, since the QDVO and RSPA ETFs should gain value over the long run. These two funds hold a variety of blue-chip stocks so you can rest easy while collecting $40,000 in cash every 12 months.