Are you staring down the barrel of retirement with little to no savings? Don’t worry, because there’s still time to secure a comfortable retirement by harnessing the power of ASX shares for passive income.
Over the last three decades, ASX shares have churned out a solid total return of 9.6% annually, and I’ve got a plan to help you tap into this potential and generate $1,200 of passive income per month.
Step 1: The power of compounding
Einstein reportedly called compounding the eighth wonder of the world, and boy, was he onto something.
By consistently reinvesting your dividends, you can harness the magic of compounding to supercharge your returns. Imagine starting with an initial investment and letting those dividends snowball over time. Eventually, you’ll have built up a nest egg to earn income from.
Step 2: High-Yield Dividend Shares
With the Australian share market’s average dividend yield of around 4%, investors have plenty of opportunities to generate passive income. But you don’t have to settle for average.
In the land of ASX dividend shares, a yield of 5% is well within reach thanks to shares like BHP Group Ltd (ASX: BHP) and Westpac Banking Corp (ASX: WBC).
By strategically selecting high-yield dividend shares, you can boost your passive income potential even further. Keep your eyes peeled for those gems that have a history of consistent dividend payouts and a solid track record of weathering market storms.
Step 3: Putting a passive income plan in action
To achieve a passive income of $1,200 per month, investors will need to generate total dividends of $14,400 a year. With a 5% dividend yield, this will mean you need a portfolio valued at $280,000. To get here, you would need to invest $10,000 per year into high-quality ASX shares for just over 13 years.
If you did this and achieved the 30-year average market return of 9.6% (and reinvested your dividends), you would hit your goal. At that point, you can switch to a passive income focus and watch the dividends come rolling in. Though, it is worth remembering that past performance is not a guarantee of future returns.
Remember, this plan is just a starting point. As you embark on this journey, stay informed, stay patient, and stay committed. Your future self will thank you.
