Investing is hard. Decades of savings to reach a nest egg can add up to nearly $1 million.
And yet, more often than ever, people reach this point of inevitability — just asking themselves: What now? How do I transition from growing my nest egg to living off a steady income stream? Is it true to think that this is possible?
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The answer is yes, it is possible. Here’s one way to do just that by using three Vanguard exchange-traded funds (ETFs).
Image source: Getty Images.
For starters, here it is Vanguard High Dividend Yield Index Fund(NYSEMKT: VYM ). This fund is one of Vanguard’s most popular and widely held ETFs. It has a history of excellent performance spanning nearly 20 years. During this time, it generated a compound annual growth rate (CAGR) of 9.3%.
What’s more, its current dividend yield of 2.3% and budget-friendly expense ratio of 0.04% make it ideal for investors looking for income and low fees.
The fund has more than 560 holdings spread across multiple sectors, including financial services (21%), technology (20%), healthcare (12%), and consumer staples (8%).
Given its diversified mix of sectors and rock-bottom expense ratio, this fund is a smart choice to form the cornerstone of an income-oriented portfolio. An investment of $425,000 in this fund will earn approximately $9,600 in annual dividend income.
Bill, there it is Vanguard Energy ETF(NYSEMKT:VDE). This fund focuses on energy sector stocks. Launched in 2004, it boasts an effective lifetime CAGR of 8.2%. This is arguably the best-performing Vanguard ETF year to date, with an exceptional return of 25% so far in 2026.
The fund holds more than 100 stocks, more than 98% of which are in North America. Top holdings include major oil and gas companies such as ExxonMobil and Chevronenergy service providers viz Baker Hughesand energy infrastructure companies such as Dear Morgan.
The Vanguard Energy ETF boasts a 2.5% dividend yield and pairs that with a very affordable 0.09% expense ratio — making this fund a consideration for any income investor.
While the fund’s strong performance, low fees, and respectable dividend yield make it very attractive, its singular focus on the energy sector could present diversification concerns for some investors.
An investment of $400,000 in this fund will earn approximately $10,080 in annual dividend income.
Finally, there it is Vanguard Real Estate ETF(NYSEMKT:VNQ). Launched in 2004, the fund focuses on the real estate sector. Specifically, the fund has broad exposure to US real estate investment trusts (REITs). These companies serve as landlords to a wide range of commercial enterprises, including data centers, logistics, and healthcare facilities.
High properties are included the well tower, Prologisand American Tower Corporation. Almost all of the fund’s holdings are located in the United States (99%), and the vast majority are large-cap stocks (75%).
During its 20-year tenure, the fund has posted a robust CAGR of 7.6%. In addition, the fund has a dividend yield of 3.6% and an expense ratio of 0.13%. The fund offers the highest dividend yield of the three funds covered here, making it very attractive to income-oriented investors. Yet, on the other hand, REITs are exposed to high interest rate environments, which means investors should be cautious about this risk.
An investment of $275,000 in this fund will earn approximately $10,000 in annual dividend income.
Admittedly, to generate an annual dividend income stream of $30,000, an investor would need a large nest egg. In fact, if using the figures mentioned above, one 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
Source of Share Earnings: Google. Investment figures and income are fictitious amounts chosen by the author.
However, any investor interested in generating income from their portfolio would do well to consider these Vanguard ETFs. They have a long and successful track record, offer exposure to multiple sectors of the economy, and charge low fees.
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Jack Leach holds positions at ExxonMobil. The Motley Fool owns and recommends positions in American Tower, Chevron, Kinder Morgan, Prologis, Vanguard High Dividend Yield ETF, and Vanguard Real Estate ETF. Motley Fool has a disclosure policy.
3 Vanguard ETFs to Buy and Hold Forever on $30,000 in Annual Income was originally published by The Motley Fool
