I Need $5k a Month To Retire, What ETFs Are Best?

I strongly believe investing is about making your money work for you. When I invest in any asset, I look for the ways it will grow my money, and one of the most important is dividends. I use the dividends to cover monthly expenses and sometimes reinvest them. If you’re also looking to make money from stocks, earning a dividend of $5,000 a month or $60,000 a year is possible. But, there’s a catch. 

You may not be able to generate $5,000 a month from a single investment, which is why diversification is the key. Invest in a mix of single-stock and dividend-focused exchange-traded funds (ETF). The idea is to allocate 80% of the capital towards diversified ETFs that offer a high yield and then invest the remaining 20% in single-stock funds. Whether you’re in the middle of your investment journey or nearing retirement, this strategy will help you enjoy a steady passive income of $5,000. Let’s dive in and see how it works. 

High-yield ETFs 

You’ve to allocate 80% of the capital to diversified ETFs. You can divide 40% each in two ETFs, namely, the NEOS NASDAQ-100 High Income ETF (NASDAQ:QQQI) and the Invesco KBW High Dividend Yield Financial ETF (KBWD). They are highly diversified funds with an impressive yield.

In order to generate a passive income of $5,000 a month, you’ll need to achieve a 12% annual yield on an investment of $500,000. QQQI has a distribution rate of 14.65% and an expense ratio of 0.68%.

A higher yield doesn’t mean high risk. QQQI is reasonably safe since it invests in the top 100 tech companies and holds industry giants such as NVIDIA (NASDAQ:NVDA | NVDA Price Prediction), Apple (NASDAQ:AAPL), Meta Platforms Inc. (NASDAQ: META), and Broadcom Inc. (NASDAQ: AVGO). The ETF pays cash distributions monthly, which will allow you to reinvest them and keep growing your money. 

The Invesco KBW High Dividend Yield Financial ETF is another great choice that can match your allocation in QQQI and help diversify. The fund is centred around the KBW Nasdaq Financial Sector Dividend Yield Index and invests in mid-cap and small-cap stocks. It is based on the Keefe, Bruyette, and Woods Nasdaq Index and holds only 42 stocks, which allows it to give a higher weightage to each.

The fund has an impressive yield of 12.51% and is focused on the financial sector. It has an expense ratio of 2.02% and pays monthly dividends. Some of its holdings include Invesco Mortgage Capital, Orchid Island Capital, and AGNC Investment Corporation. While you may not recognise all of the names on the list, these companies have a strong dividend yield. 

Investing in these ETFs equally ensures an average 12% yield or more with only 80% of your funds. Let’s look into the allocation of the remaining 20%.

Single-stock funds 

Single-stock funds are ETFs that focus on a single stock and hence, carry a higher risk. They aren’t as diversified as other ETFs, but their yields are impressive. You can invest 10% each in The YieldMax AMZN Option Income Strategy ETF (NYSEARCA:AMZY), which focuses on Amazon.com Inc. (NASDAQ: AMZN) and has a distribution rate of 53.53%.

The YieldMax NVDA Option Income Strategy ETF (NYSEARCA:NVDY) focuses on Nvidia stock and enjoys a distribution rate of 65.88%. I picked these two because of the company’s strength and dominating industry position. Both Amazon and Nvidia are set to continue ruling the tech space with their products and services; hence, the risk is fairly low.

Both the funds have seen steady growth over the past year. However, they aren’t risk-free, which means you do not want to invest all of your money in these funds. While their high yields can quickly boost your portfolio’s total yield, it helps to allocate a maximum of 20% to the ETFs. 

You must balance risk and safety. Your 80% investment in the ETF is much safer since it is highly diversified. They’ll offer safety, balance your portfolio, and generate $5,000 per month.