Recent trends show a surge in popularity for covered call ETFs, especially those tracking major indices like the S&P 500 or NASDAQ, among income-oriented investors.
The Vanguard High Dividend Yield ETF (VYM) stands out as a more robust and preferable core holding for a passive income-focused investment portfolio when compared to the Global X S&P 500 Covered Call ETF (XYLD). VYM offers significant structural advantages, such as broader sector diversification, a notably lower expense ratio of 0.06%, and a consistent track record of 19 years of dividend growth with a 10-year dividend compound annual growth rate of 5%. In contrast, while XYLD may attract investors with its high yield, this often comes at the cost of higher fees and constrained growth potential.
For investors aiming for higher yields than VYM alone can provide, a strategic approach involves pairing VYM with other high-yield funds like UTG, AMLP, and RQI. This combination can lead to mid-single-digit yields and strong dividend growth, thereby enhancing both the sustainability of income and risk-adjusted returns within a diversified portfolio.
Investing wisely is not merely about chasing the highest immediate returns, but about building a resilient and sustainable financial future. By prioritizing ETFs like VYM that offer solid fundamentals, consistent growth, and diversification, investors can cultivate portfolios that not only provide reliable income but also stand strong against market fluctuations, fostering long-term prosperity and financial peace of mind.