Best ETFs to Invest in 2025: The Ultimate Passive Income Strategy (Part 2)

11 International ETFs — Going Global for Growth

The U.S. market dominates headlines, but it represents only about 60 percent of global equity value. If you ignore the rest of the world, you miss nearly half of the opportunity set. In 2025, diversifying abroad is not just a luxury — it’s a hedge against domestic slowdowns and currency shifts.

A. Developed-Market ETFs

1. Vanguard FTSE Developed Markets ETF (VEA)

   • Covers Europe, Japan, and Australia.

   • Expense ratio 0.05 %.

   • Attractive dividend yield around 3 %.

2. iShares MSCI EAFE ETF (EFA)

   • Tracks the most popular non-U.S. index (Europe, Australasia, Far East).

   • Excellent liquidity and tight bid-ask spreads.

B. Emerging-Market ETFs

1. Vanguard FTSE Emerging Markets ETF (VWO)

   • China, India, Brazil, and Southeast Asia.

   • Expense ratio 0.08 %.

2. iShares MSCI India ETF (INDA)

   • India is the world’s fastest-growing major economy in 2025.

   • Demographics and digitalization support long-term expansion.

3. Franklin FTSE Brazil ETF (FLBR)

   • Energy and agriculture exposure for commodity hedging.

Adding a 10–15 % international allocation reduces risk and adds currency diversification to a U.S.-heavy portfolio.

12 Building an ETF-Only Portfolio

ETFs allow you to construct a complete portfolio with no individual stocks at all. Here’s how to build a 2025-ready model portfolio:

Asset ClassExample ETFAllocationPurposeU.S. Large CapVOO30 %Core growthU.S. DividendSCHD15 %IncomeInternational DevelopedVEA10 %DiversificationEmerging MarketsVWO5 %Higher growthBondsBND20 %StabilityReal EstateVNQ10 %Inflation hedgeCommodities/GoldGLD5 %SafetyCashMoney Market5 %Liquidity

Average historical return: ≈ 8 % with moderate volatility. Rebalance once a year to maintain targets.

13 ETF Dividends and Distribution Schedules

Unlike individual stocks, ETFs often pay dividends quarterly or monthly. Understanding this pattern helps create predictable cash flow.

• Quarterly payers: VOO, SCHD, VYM, VNQ.

• Monthly payers: SDIV, JEPI, some bond ETFs.

Pro Tip

Combine two monthly payers and two quarterly payers to receive income every single month of the year.

14 Covered-Call and Income-Focused ETFs

Covered-call funds sell options on their holdings to generate extra income. They’re perfect for investors who want high yields and are okay with limited upside.

Top Choices for 2025

1. JPMorgan Equity Premium Income ETF (JEPI)

   • Yield ≈ 8 %.

   • Combines blue-chip stocks with option premium income.

   • Monthly payouts.

2. Global X S&P 500 Covered Call ETF (QYLD)

   • Yield ≈ 10 %, paid monthly.

   • Better for side income than long-term growth.

3. Nationwide Risk-Managed Income ETF (NUSI)

   • Uses protective puts to limit downside risk.

   • Yield ≈ 7 %.

Covered-call ETFs shine in flat markets when price growth is slow but volatility is high — exactly what many analysts expect for 2025.

15 ETFs for Retirement Accounts

Retirement investors benefit most from ETFs because tax-efficiency and low fees compound over decades.

Best Core ETFs for IRA or 401(k):

• VOO (Vanguard S&P 500)

• VTI (Vanguard Total Stock Market)

• BND (Vanguard Total Bond)

• VXUS (Vanguard Total International)

Add a touch of VNQ or SCHD for income.

Avoid high-yield funds that create taxable distributions inside taxable accounts — keep them in your IRA instead.

16 ETFs vs Mutual Funds — Why ETFs Win

Mutual funds still exist, but ETFs have outperformed in structure and cost.

FeatureETFMutual FundTradingIntradayEnd of day NAV onlyFeesLowerHigherTaxesMore efficientCapital gain distributionsTransparencyDailyQuarterlyMinimum InvestmentOne shareOften $1 000 +

In 2025, mutual funds feel like landlines in a smartphone era. ETFs are cheaper, simpler, and better suited for automation.

17 ETF Tax Efficiency and Strategies

ETFs use an “in-kind redemption” process that minimizes capital gains tax. But you can go further:

1. Hold long term — short-term sales are taxed heavier.

2. Use Roth IRA — all dividends and gains grow tax-free.

3. Tax-loss harvesting — sell a losing ETF to offset gains and buy a similar one (VTI → SCHB).

4. Municipal Bond ETFs — interest is federally tax-exempt for U.S. residents.

Tax savings alone can increase net returns by 1–2 % per year.

18 How to Reinvest ETF Dividends

Two choices:

• Take cash: Ideal for retirees needing monthly income.

• Reinvest (DRIP): Buys more shares automatically — perfect for growth.

Example: A $10 000 holding in SCHD at 3.6 % yield produces $360 a year. Reinvested for 20 years at 8 % annual return grows to ≈ $21 000 — double without adding new money.

19 Smart Ways to Use ETFs in Different Market Conditions

ScenarioStrategyBest ETF TypeRising RatesShort-term bond ETFsSHY, BSVFalling RatesLong-term bond ETFsTLT, IEFInflation SpikesCommodity & REIT ETFsGLD, VNQ, ICLNRecessionDefensive dividend ETFsSCHD, VYMBooming EconomyGrowth & tech ETFsQQQ, XLK

Adaptability is the ETF investor’s secret weapon — you can pivot between themes instantly without huge fees or tax burdens.

20 Sample Passive-Income ETF Portfolio

Let’s build a $100 000 example aimed at 5 % annual income and balanced risk:

ETFAllocationYieldAnnual IncomeSCHD25 %3.6 %$900VYM20 %3.1 %$620VNQ15 %4.3 %$645JEPI10 %8.0 %$800BND15 %4.5 %$675GLD5 %0 %—VXUS10 %3 %$300Total≈ 5 %≈ $3 940 per year

Reinvest half of this income and you’ll nearly double cash flow within 12–15 years — completely passive.