How to build a passive income portfolio with ETFs in five easy steps!

What you need:

  • Source of Income or accumulated wealth
  • Time
  • Understand your tax situation
  • Understand what are your tax advantages regarding investing
  • Understand your risk profile
  • Understand what is passive income

Step one: Start Early, Very Early

This is the one most important aspect of seeking to build a passive income portfolio that can support your lifestyle. Compound interest is your friend it will multiply over and over again your initial investment. The earlier you start, the better off you will be.

Step two: Limit your expenses

Rational Frugality. Self Control. Paying Attention To Lifestyle inflation. Paying yourself first. Simple rules that work.

Your income is a huge factor and the single most important thing. Choosing the right career and doing the right networking is the one key factor in getting to financial independence. The second key factor is choosing how much of that money should you part with indefinitely.

Controlling the wants of your body will eventually adjust it to need fewer things. Your body naturally wants things that taste good as frequently as possible. This extends to many other things which we buy just because we can, and it feels good.

Refocus on another narrative, that of building a passive income tunnel to escape the rat race and climb to financial independence. The body might scream for a bit, but just like a cried out toddler eventually it will realise that the impulse to open the wallet is not working anymore.

Step three: Save at least 20% of your income and invest it

The saving part.

  • Smart Frugality.
  • Astute purchasing.
  • Choosing wisely your better half.
  • Saving more than you spend.

The above are age-old sayings that have a lot of value. Step three is the boring part of the process and will take a few decades to complete. The idea is to focus on the day. What can you today to further your objectives. These are wins in and of themselves. The ultimate goal of financial freedom is the ultimate goal, but not the only one. There is a pleasure to live a sustainable and conscious life. Self-satisfaction can be found when delivering real value to real people, and there is no harm to make a profit in the process. Saving is 80% of financial independence, create a passive income portfolio is the other 20%.

Step four: Investing part.

The stock market is probably the most reliable place to invest in. It is well regulated, the chances of being scammed are lower than in other areas. You do not need to monitor your investments frequently if invested in index funds. It is the ideal place to put your money to work while you work on other things.

John C. Bogle created the passive incomes investor’s best friend; Low-cost index funds. Vanguard is by far one of the lowest and most renowned index fund providers. They facilitate investing. They have low expenses. They are easy to understand.

Before you create your passive income portfolio an investor typically needs to create a wealth accumulation portfolio. The focus here is growth and not income. In the growth phase upside should not be limited and compounding happens automatically. The income is being used to build more capital instead of being paid out to the investor.

Learn more boost your portfolio by creating passive income.

A model portfolio: The wealth accumulation portfolio

What you need to consider

  • Fees
  • Diversification
  • Your Persistence
  • Cash Emergency fund
  • Your base retirement currency

Where to invest: Model Portfolio – Not financial or investment advice


  • 1% – 10% Alternatives such as precious physical metals, crypto (for example crypto exchange coins), real estate, and alternative investments.
  • A side hustle which you can continue doing after you quit your nine to five. Examples of side hustles include old timer car repair, repairing bicycles, consulting or becoming a dog trainer. Any passion can be turned into a side hustle, this can be the bridge between your 9-2-5 life and your financial freedom life. We all need to feel useful. Putting your passion at the service to society is one of the best things any person can do. Commit to working on your side hustle every day be it 20 minutes or 2 hours and the magic will happen by itself.

Step four: Acquire financial independence.

There are many routes to take to get to financial independence and even more things to do after you acquire it. It is a personal choice based on the opportunities you have. Those who are lucky can find their passion and turn it into a full-time income. The others have to work at something to follow their passion afterwards. For the latter, this does not mean decades of joyless live living on models, on the contrary, the process of getting there should be a source of satisfaction and joy.

  • leanFire – Low expenses after FI
  • fatFIRE – High expenses after FI
  • fedFire – Retire while working from the Government
  • semiFire Stop working full time and work part time after getting to FI

See also: leanFire vs fatFire

There are no rules. Make your own!

Step five: Build your passive income portfolio

You have a selection of ETFs you can choose from here

  • Option 1 – Calculate your safe withdrawal rate and take out a percentage monthly from your “wealth accumulation portfolio”.
  • Option 2 – Move part or all of your assets to passive income ETFS. Consider the pros and cons of passive income vs a growth portfolio.

This to consider

  • Tax implications of monthly income.
  • Fees of the different funds
  • What do you plan to leave as an inheritance? Does leaving it in your wealth accumulation portfolio make more sense than in your financial situation?
  • How much income do you need to support your lifestyle?
  • What are the known large ticket expenses and medical bills
  • Emergency and Medical insurance
  • Hunger for yield is driving the value of passive income assets higher. There could be a sharp market re-evaluation of interest rates ever rise.

The passive income portfolio based on index ETFs. Ordered roughly by their risk profile.

This is a list of popular dividend ETFs; this is not a model portfolio. At this stage, it is very important to consider the cost/benefit of these funds.

  • Vanguard Total Bond Market Index Fund
  • Vanguard Total International Bond Index Fund
  • iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB A-)
  • PIMCO Total Return ETF (BOND B)
  • iShares iBoxx $ Investment Grade Corporate Bond ETF
  • Vanguard Dividend Appreciation
  • Vanguard Utilities Index Adm
  • Vanguard High Dividend Index
  • Vanguard Real Estate Index
  • Vanguard REIT Index Fund
  • Alternatives: Crypto, PreciousMetals
  • 15% cash
  • Income from side hustle Read more: The three pillars of my FIRE strategy

See more: dividend ETFs


It can be done. The end goal is freedom and freedom is priceless. It takes hard work, focus and the ability to focus your attention on what matters. In the end, a passive income portfolio is your gateway to owning your destiny and your life. Go!

Read more: Why people fail at Financial Independence?

Not investment advice. Not financial advice. Consult your financial advisor. Not a recommendation to buy, sell or hold. The staff of this site may own these digital asset/s mentioned on this page. Investing is risky and you may lose all your capital. See full disclaimer.

Keep in mind that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.

Author: Jim Reynolds
Jim Reynolds. Is passionate about finance, passive income and cryptocurrencies. He writes about his passions on He has worked in the tech and financial industry for a few decades. He holds a masters in business admin and a bachelors in IT. All his writings are not investment advice.

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