3 High-Yield ETFs I Can’t Wait To Buy For Passive Income This September

I want to be able to retire early. It’s not that I don’t want to work (I really love what I do and hope to continue doing it for a very long time), I just don’t like the stress of having to earn money to live. That’s why I’m working hard now to become financially independent so I can be in a position to retire early if I ever want to.

Generating passive income is a core aspect of my strategy. My goal is to grow my passive income to the point where it covers my routine expenses. We’ve found that exchange traded funds (ETFs) can be great passive income investments. For this reason, I typically invest in ETFs that offer a high dividend yield. Here are three high-yield ETFs I can’t wait to buy more of in September.

JPMorgan Equity Premium Income ETF

JPMorgan Equity Premium Income ETF (JEEP 0.48%) aims to provide monthly distributable income to its investors. It also tries to give them exposure to the stock market with lower volatility. In other words, it tries to provide a bond-like income stream with growth potential.

The dividend ETF lives up to its name. The annualized return on the most recent payout was 6.9%. Meanwhile, the trailing 12-month dividend yield is 7.6%. That level rivals high-yield junk bonds (yielding 7.9%) and is much higher than other income-focused investments such as real estate investment trusts (4.4%) and 10-year US Treasuries ( 4.4%).

The ETF generates such a generous stream of income with a two-pronged strategy: investing in a defensive portfolio of high-quality stocks selected based on its proprietary ranking and writing out-of-the-money call options on S&P 500 Index. You can read more about options trading here, but simply put, the ETF hedges stocks with a bet that the S&P 500 won’t close above a certain price on a certain date. This strategy generates income from option premiums that the fund distributes to investors each month.

Add them up and the fund offers investors passive income and growth potential with less volatility. These features make it a good fit for my portfolio.

iShares 0-3 Month Treasury Bond ETF

iShares 0-3 Month Treasury Bond ETF (SGOV 0.05%) invests in short-term US Treasury bills (T-bills) with remaining maturities of three months or less. Short-term Treasury bills carry minimal risk (Treasuries are often called “risk-free” investments). Meanwhile, they offer a generous income yield (currently around 5.2%).

This ETF is a great place to park idle cash. Many brokerage accounts don’t pay high returns on cash (at least mine didn’t). Because of this, investors who like to have a significant cash position (like me) are losing out in today’s higher interest rate environment.

I’ve found that investing most of my idle cash in the iShares 0-3 Month Treasury Bond ETF is a great way to generate incremental passive income. The fund makes cash distributions each month, which I can reinvest in this ETF or another income-generating investment. It’s also highly liquid, meaning you can sell shares when you need cash for another investment.

SPDR Portfolio High Yield Bond ETF

SPDR Portfolio High Yield Bond ETF (SPHY) provides exposure to the large and lucrative junk bond market. US high yield debt is a $1 trillion+ market. These bonds offer higher yields than investment grade bonds to compensate investors for the higher risk of default. This ETF’s distribution yield averaged 7.7% over the past year).

While high-yield bonds are riskier, this ETF helps with some of that by diversifying. It currently holds more than 1,925 bonds from issuers in a wide range of sectors (bonds issued by consumer cyclical companies are the largest at 20.5%). Diversification across issuers and sectors helps reduce default risk.

The SPDR Portfolio High Yield Bond ETF makes monthly distribution payments. While these payouts will ebb and flow with interest rates and the economic cycle, this ETF can generate more income than one focused on investment-grade corporate bonds such as iShares iBoxx $ Investment Grade Corporate Bond ETF. It’s a good ETF for those looking to earn a little more income from a small portion of their fixed income portfolio.

Improving my passive income

I believe passive income will be my ticket to financial freedom. That’s why I invest a portion of my active earnings each month in passive income vehicles such as higher yielding ETFs. This strategy allows me to grow my passive income every month, bringing me a little closer to my goal of becoming financially independent.