When it comes to building passive income in the stock market, as is always the case, the best strategy for investors is to focus on finding high-quality stocks and exchange-traded funds (ETFs) to buy and hold for the long term.
Building passive income isn’t just about collecting the dividends themselves. It’s about reinvesting those dividends and allowing them to compound.
And when you buy high-quality stocks and ETFs that are consistently growing their distributions, the passive income your portfolio generates compounds even faster.
And while there are many high-quality Canadian dividend stocks to choose from, one challenge many investors face when building an income portfolio is diversification. That’s why some of the best passive-income investments to buy and hold forever are high-quality ETFs.
ETFs allow investors to gain exposure to dozens of income-producing securities with a single investment. That diversification helps reduce risk while still allowing investors to generate steady passive income.
Some ETFs are even specifically designed for income investors, combining dividend stocks, bonds, and other yield-generating assets into one portfolio that can deliver reliable and consistent distributions.
So, if you’re looking to boost the passive income your portfolio generates with high-quality ETFs that you can buy and hold forever, here are two top picks to consider right now.
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A high-quality Canadian ETF to buy for passive income every month
If you’re looking for a reliable Canadian ETF that offers an attractive yield and generates passive income every single month, there’s no question that iShares Diversified Monthly Income ETF (TSX: XTR) is one of the best to buy now.
As its name suggests, the ETF is made specifically for dividend investors by investing in a diversified mix of income-producing assets.
For example, in addition to buying high-quality dividend stocks, the XTR also owns bonds and preferred shares.
Furthermore, it’s also a fund of funds, meaning that it gains much of its exposure to these assets by investing in other passive income ETFs.
The fact that it’s a fund of funds is important because that diversification is crucial to help ensure the income stream remains stable by aiming to reduce the volatility that can sometimes come from relying on a single asset class.
The diversification goes far beyond asset class, though. While nearly 60% of the ETF is invested in fixed-income assets, it’s also invested across both Canadian and American equities. Furthermore, no single sector makes up more than 10% of the portfolio.
Therefore, because of its diversified structure, focus on income-generating assets, and attractive yield of roughly 4.1% today, there’s no question that the XTR is one of the best passive income ETFs that Canadians can buy now.
A top ETF to buy for exposure to Canadian real estate
In addition to iShares Diversified Monthly Income ETF, another high-quality ETF that passive income seekers can buy now is BMO Equal Weight REITs Index ETF (TSX: ZRE).
The ZRE offers exposure to a diversified portfolio of Canadian real estate investment trusts (REITs), which own assets such as apartments, shopping centres, office buildings, and industrial properties, and more.
Real estate has long been considered one of the most reliable sectors for income investors because these businesses generate consistent rental revenue from tenants.
That’s why the ZRE is one of the best ETFs that passive-income investors can buy and hold for years. It’s also why it’s no surprise that it offers an attractive yield of more than 4.8% today.
It offers a simple way for investors to gain exposure to that consistent income without needing to do a ton of research and try to pick individual REITs.
It doesn’t just offer diversification to several high-quality REITs, though. In fact, one of its most important features is its equal-weight structure.
That means that instead of allocating the majority of its portfolio to the largest REITs, the ZRE ETF spreads its investments more evenly across the sector, which improves diversification and prevents larger REITs from dominating the portfolio.
So, if you’re looking for a high-quality passive income ETF to buy and hold for the long haul, the ZRE is unquestionably one of the top picks to consider today.
