Big Passive Income in 2025: Why VYM and VYMI Are Top Picks for Retirees

This current market backdrop is one that’s kind of hard to parse out, in terms of which direction stocks are headed from here. On the one hand, the job market does appear to remain strong, and there are indications that inflation is coming down. On the other, stagflation looks like a more likely outcome as more and more tariffs are handed down, and the independence of the Federal Reserve and other key government agencies does appear to be waning. 

Ultimately, we’ll have to see how everything shapes up. But for long-term investors looking to position their nest eggs appropriately to combat what could be a period of higher inflation, not owning stocks (which have shown an incredible ability to rise during such periods) could be a mistake. Indeed, investors who have sat on the sidelines since, say the pandemic, have missed out on incredible gains and may be kicking themselves right now.

That said, I don’t think now may be the best time to jump into individual stocks with both feet. For those looking for low-cost diversified exposure to the equity market, here are two top ETFs I’m looking at right now as excellent options for a retirement portfolio. 

Vanguard High Dividend Yield ETF (VYM)

One of my top picks I’ve touted in the past, the Vanguard High Dividend Yield ETF (VYM) is an excellent option for investors looking for exposure to U.S. dividend-paying stocks, but don’t like the sub-1% yield many index ETFs provide in this environment. Indeed, I’m one such investor who doesn’t find such a yield compelling, even if capital appreciation for stocks has remained solid over the better part of the past two decades.

Compared to many index-tracking ETF’s, VYM’s dividend yield a bit above 2.5% at the time of writing is meaningful, and that’s one key reason why many investors take a look at this fund. But what I really like about this particular ETF is its rock-bottom expense ratio of just six basis points (0.06%). Vanguard is known for its strategic focus on bringing down costs in any way possible, and this fund has certainly done just that. 

Additionally, I think VYM is among the most well-diversified ETFs in the high-yield, low volatility space, with outsized exposure to sectors such as healthcare, financials, energy, consumer staples and technology. Investors may miss out on a bit of growth from high-flying tech stocks, but should more than make up for that loss in down markets given the lower risk and lower beta this fund provides. 

For investors looking for a resilient dividend ETF that can provide a mix of balance and defensiveness in this current climate, VYM is a top option to consider in my books. 

Vanguard International High Dividend Yield ETF (VYMI)

What I would refer to as VYM’s “sister” ETF, the Vanguard International High Dividend Yield ETF (VYMI) is, as its name suggests, a very similar ETF in form and function, with the distinct difference that this ETF targets a very broad swath of international stocks.

As we saw during the April tariff tantrum, in which U.S. stocks plunged while many international markets held up relatively well, a rotation into international stocks buoyed this ETF and led to a surge of capital into VYMI and other similar funds. While that surge has since abated, I think the thesis behind holding some exposure to international stocks remains solid – no one really knows to what degree U.S. exceptionalism will continue to hold up, particularly given where valuations are today across most major U.S. indices. 

This ETF importantly provides a much higher yield than VYM, at nearly 4%. That’s partly due to the fact that many other global markets haven’t seen the same rip-roaring surge the U.S. market has in recent year. This means that valuation multiples are lower, and therefore yields are higher (at least on a relative basis). 

So, in addition to the extra geographic diversification this ETF provides, investors get a meaningfully higher yield to compensate for a likely lower return from a capital appreciation standpoint. That’s a fair trade worth making, in my view, even if investors have to pay an expense ratio of 0.17% for this exposure.