What's the Best Index Fund for Passive Income?


What's the Best Index Fund for Passive Income?

When it comes to investing in the stock market, there are so many ways to create passive income. All the different investing strategies can feel overwhelming!


My preferred passive income strategy is index fund investing. It's how I was able to replace my salary and leave the corporate world.

That's right, I currently live off my passive income from index fund investing.

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First, what exactly is an index fund?


An index fund is a portfolio of stocks or bonds that tracks the performance of a financial market index, such as the S&P 500.

What's the best index fund to invest in to make passive income?


There's no one size fits all strategy when it comes to investing in index funds. The best index fund for you is one aligned with your risk tolerance.



Not sure how to get started with index fund investing?


Studies show that if you have many years ahead of you before retirement, a portfolio of 80% stocks and 20% bonds provides great returns over time.


You'll simply have to rebalance it periodically to keep your portfolio 80/20. As you near retirement, let's say 5 years to retiring, a higher percentage of bonds is recommended to help smooth out market volatility.


Personally, I like to keep my portfolio simple: 100% VTSAX. 0% Bonds.


It may not outperform an 80/20 portfolio but I like not having to rebalance my portfolio periodically. After all, this website is named "Not A Bond Girl" for a reason!

What's the Best Index Fund for Passive Income?

Interested in creating passive income through index fund investing too?

Then you probably already know that the path to financial wealth is to have your money work for you. Investing in index funds allows your money to compound over time so that you can earn money while you sleep.

Not interested in stock picking and day trading? Want to sleep soundly at night despite the volatility of the markets?

Studies show that if you have many years (decades) ahead of you before retirement, a portfolio of 80% stocks and 20% bonds provides great returns over time.

You'll simply have to rebalance it periodically to keep your portfolio 80/20. As you near retirement, a higher percentage of bonds is recommended to help smooth out market volatility.

Personally, I like to keep my portfolio simple: 100% Stocks. 0% Bonds. It may not outperform an 80/20 portfolio but I like not having to rebalance my portfolio periodically.

Specifically, I follow author of “The Simple Path to Wealth” Jim L. Collins investment strategy.


I have a Vanguard brokerage account and invest in Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX).

It is a low cost index fund that hits all the diversification points mentioned above.

According to Collins, investing in the well diversified VTSAX is the simplest path to wealth.

He recommends investing 100% in VTSAX. Upon nearing retirement, then rebalance your portfolio to 75% VTSAX and 25% VBTLX (bonds).

VTSAX allows for a diversified portfolio as it covers being:

  • Diversified across different asset classes

  • Diversified within asset classes

  • Diversified across markets, countries and currencies

  • Diversified across time

What does it mean to be diversified across time? I’m talking at least a ten year long term investment strategy. No jumping in and out of the market.

Even the top financial gurus are not able to predict the right time to buy stocks. By adding to my index fund portfolio systematically over months and years, I reduced my risk and increased my returns over time.

This was a major factor in helping me reach financial independence retire early (FIRE) at 35.

Yes, 100% of my investment portfolio is invested in VTSAX. And I sleep very well each night.

Well technically, 5% of my investments are in index funds similar to VTSAX because previous 401K Plans and other job related retirement accounts did not offer VTSAX in the benefits package.

So I selected the closest index funds to VTSAX. But basically, I'm "Not A Bond Girl" and very much a "Stock Girl."

Interested in taking a deeper look into this passive income strategy?

Read “The Simple Path to Wealth” here!


Or if you're like me and prefer audiobooks, I bought mine on Amazon to listen to over and over for the investment tips and mainly for the inspiration.

Check out the audio version of "The Simplest Path to Wealth" here.

Investing your hard earned money can feel daunting. I get it.


Here's how I became a Corporate Dropout...


In 2019, I quit my corporate job, sold my condo, gave everything away, and moved across the country. In that order, within a month.


I tried leaving the 9-5 grind 3 times. The first time was ugly and messy. Second time was a little better. Third time was the charm.

In my mid-30s, I reached financial independence retire early (FIRE) by creating multiple income streams from investments and side hustles.



It was mainly through my passive investments that I was finally able to leave a career that was no longer a fit. More importantly, it was time to get away from East Coast winters!


So I gave everything away and left all my furniture. I took my favorite pair of heels though. Other than that, I shipped my car and gave away everything else.


It was time to start a new chapter. Being born and raised in Hawaii, I had enough of East Coast winters. So I picked Southern California as my new home.


Although, I didn't have another job lined and was just starting up my business, I was financially independent. Prior to resigning, I was able to get my finances in order with passive investments and other income streams.


Which passive income strategy is best for you?

Quiz: Best Passive Income Strategy for Your Personality!


What's the Best Index Fund for Passive Income?

Create multiple income streams.


Whether it's passively or actively earned, millionaires have an average of seven income streams. After all, having multiple income streams is one of the great keys to wealth.


There are many ways to have a side hustle these days. You don’t even have to start a business to do so.


This includes freelance writing to renting out your car. Investing in rental properties is a great way to create cash flow too.


For years, I experimented with different types of side hustles. Eventually, I got to get a feel of what I enjoyed doing and let go of the activities that were not as enjoyable.


During my weekends, I taught yoga and wellness workshops at a local hospital. I also worked the front desk of a yoga studio at one point too.


When it comes to being a dropout, there’s one thing I know for sure. It’s not as easy or glamorous as it seems on the surface.


Whether it’s dropping out of Corporate or college, there’s a lot of unknowns involved. They say fear of missing out (FOMO) is a real thing. Well fear of the unknown is also no joke.


While I don't recommend resigning without a plan, sometimes you know when enough is enough.

Creating passive income helped me leave the 9-5 lifestyle once and for all. It wasn't easy leaving a steady paycheck and company benefits behind.

Those golden handcuffs are no joke!

Having passive income allowed me to leap with more peace of mind. To help others create passive income streams, I put together this Passive Income Quiz.


Which passive income strategy is best for you?

Quiz: Best Passive Income Strategy for Your Personality!


What's the Best Index Fund for Passive Income?