Vanguard ETFs VYM & VYMI: Top Picks for Retirement Income

The current market environment presents a complex puzzle for investors. Positive indicators, such as a robust job market and signs of cooling inflation, are counterbalanced by concerns over stagflation fueled by increasing tariffs and questions about the independence of key institutions like the Federal Reserve. This ambiguity makes a strong case for a defensive, long-term approach. Investors who retreated to the sidelines during past periods of uncertainty, such as the pandemic, missed substantial market gains. The key lesson is not to attempt timing the market, but to position a portfolio with resilience in mind, especially with the potential for prolonged higher inflation.

In such a climate, jumping into individual stocks with both feet is seen as particularly risky. Instead, Exchange-Traded Funds (ETFs) offer a solution by providing instant diversification and mitigating company-specific risk. For those building a retirement nest egg, the focus shifts to funds that can generate meaningful passive income while offering a buffer against volatility. This is where dividend-focused ETFs, specifically those from a low-cost leader like Vanguard, become compelling options for constructing a foundational portfolio.

The Vanguard High Dividend Yield ETF (VYM) stands out as a top pick for investors seeking exposure to U.S. dividend-paying stocks without settling for the sub-1% yields common to many broad market index ETFs. At the time of writing, VYM offers a meaningful dividend yield of approximately 2.5%, providing a tangible income stream. However, its appeal extends beyond yield. A cornerstone of its value proposition is Vanguard’s renowned focus on cost efficiency, evidenced by an exceptionally low expense ratio of just 0.06%.

Beyond cost and yield, VYM’s strength lies in its well-diversified portfolio. It provides outsized exposure to defensive sectors such as healthcare, financials, energy, and consumer staples, alongside technology. This composition inherently lowers the fund’s overall risk and beta, meaning it may not capture all the upside during tech-driven rallies but is positioned to hold up better during market downturns. For investors prioritizing a mix of balance, defensiveness, and reliable income from the U.S. market, VYM represents a resilient cornerstone holding.

Acting as a strategic complement to VYM, the Vanguard International High Dividend Yield ETF (VYMI) applies a similar high-dividend strategy to a broad swath of international stocks. This geographic diversification is a critical hedge. As demonstrated during market events like the ‘April tariff tantrum,’ where U.S. stocks faltered while international markets showed relative strength, global exposure can provide valuable portfolio ballast. The thesis is straightforward: U.S. exceptionalism cannot be taken for granted, especially given elevated valuations in domestic indices.

VYMI compensates investors for this diversification with a significantly higher dividend yield, currently near 4%. This elevated yield is partly a function of international markets not experiencing the same valuation surge as the U.S., resulting in lower multiples and higher relative yields. While investors pay a slightly higher expense ratio of 0.17% for this international exposure, the trade-off is compelling. They gain meaningful geographic diversification and a higher income stream, which can help compensate for potentially lower capital appreciation compared to U.S. stocks. For those concerned about concentration risk in the U.S. market, VYMI is an essential component of a well-rounded retirement portfolio.

In summary, the combination of VYM and VYMI offers a powerful strategy for retirement-focused investors navigating today’s economic uncertainty. VYM provides a low-cost, defensive anchor within the U.S. market, while VYMI delivers crucial international diversification and a enhanced yield. Together, they enable investors to build a stream of passive income without the risks associated with selecting individual stocks.

While the path of inflation, Federal Reserve policy, and tariffs remains uncertain, the case for staying invested in a diversified portfolio of quality assets is strong. For those looking to combat potential stagflation and build a resilient retirement portfolio, these two Vanguard ETFs present a practical and effective solution for generating big passive income in 2025 and beyond.