Best Index Funds for Passive Income

If you want to grow your money without actively managing investments, index funds are your go-to. They’re low-cost, low-maintenance, and perfect for building passive income. But which ones are worth it in 2025?

We’ve cut through the noise and picked the top index funds that offer strong yields, low fees, and consistent long-term performance.

What Makes a Great Passive Income Index Fund?

Before we get to the list, here’s what we looked for:

Low expense ratios: The lower the fee, the more you keep.
Dividend payouts: Regular income is key.
Diversification: Less risk, smoother returns.
Track record: Proven performance through good and bad markets.

Top Index Funds for Passive Income in 2025

1. Vanguard High Dividend Yield ETF (VYM)

Yield: ~3.1%
Expense Ratio: 0.06%
Why It’s Great: Targets large U.S. companies with solid dividend histories. Great for steady cash flow.

Search Term: high dividend ETFs 2025

2. Schwab U.S. Dividend Equity ETF (SCHD)

Yield: ~3.5%
Expense Ratio: 0.06%
Why It’s Great: Focuses on quality dividend-paying U.S. stocks. Strong track record of performance and income growth.

Search Term: best passive income ETFs

3. Vanguard Total Stock Market Index Fund (VTSAX)

Yield: ~1.5%
Expense Ratio: 0.04%
Why It’s Great: Complete exposure to the U.S. stock market. Lower yield, but strong long-term growth and reinvestment potential.

Search Term: total market index fund

4. iShares Core High Dividend ETF (HDV)

Yield: ~3.8%
Expense Ratio: 0.08%
Why It’s Great: Focuses on stable, high-dividend U.S. companies. Defensive and income-generating.

Search Term: dividend-focused index funds

5. Vanguard Real Estate ETF (VNQ)

Yield: ~4.0%
Expense Ratio: 0.12%
Why It’s Great: Offers real estate exposure through REITs, which must pay out 90% of taxable income as dividends. Excellent passive income tool.

Search Term: REIT ETFs for income

How to Use Index Funds for Passive Income

Here’s the playbook:

Invest regularly: Use dollar-cost averaging.
Reinvest dividends (at first): Build compound growth.
Eventually take payouts: Flip the switch when you want monthly or quarterly income.
Balance risk: Mix growth and income funds.
Watch fees: Small % differences cost thousands long-term.

Final Thoughts

You don’t need to trade stocks or chase trends. The best index funds in 2025 offer a simple path to passive income. Choose funds that fit your goals, keep fees low, and let your money do the heavy lifting.

Categories : Financial Services