How much should I invest in ASX shares to quit work and live only off dividend income

A woman looks quizzical while looking at a dollar sign in the air.A woman looks quizzical while looking at a dollar sign in the air.

Building a portfolio of ASX shares capable of providing enough dividend income to allow an investor to quit their job might sound like a hard ask. But by investing strategically and consistently, I think I could end up raking in passive income.

Here’s how I’d aim to build a passive income stream large enough to replace my salary by buying ASX dividend shares.

Breaking it down

Stripping it back to bare basics, investing in ASX shares is as simple as buying a slither of a business. If that business has more cash than it needs to grow, it hands the unused portion back to its owners – or investors, in this case – in the form of dividends.

Thus, it’s possible to create a reliable income from dividends on the ASX. Though, I doubt building a portfolio large enough to provide me with a salary-sized revenue will be an overnight endeavour.

How much dividend income do I need to live?

Now, we get to the key question. How much a person needs to live will vary.

For instance, one wishing for a quiet countryside lifestyle will likely require less cash than another who hopes to boast an inner-city penthouse and regular international holidays.

Let’s say $70,000 a year would be enough to get me by. If I were able to realise a relatively average 5% dividend yield, I would need a portfolio worth $1.4 million.

On the other hand, if I were able to sustain an above average, but not unheard of, 7% dividend yield, my ASX portfolio would need to be worth just $1 million to bring in $70,000 of dividend income annually.

So, without a million dollars or more in my piggy bank, how will I build such a portfolio? Well, it might not be the feat it appears.

Building my ASX dividend income portfolio

If a $1 million passive income portfolio was my goal, I would start by assessing how much I could afford to invest each month.

Let’s say I were to set aside $700 a month. I might invest that in ASX shares capable of paying a 7% dividend yield on average, and reinvest all the payments I receive, thereby compounding my returns.

At that rate, it would take me around 33 years to build my targeted portfolio, assuming my shares don’t realise any capital gains. Though, historically, the bourse has always moved higher.

Of course, no investment is guaranteed to provide returns, and past performance isn’t an indicator of future performance.

But what if 33 years’ time was a little too far away for my liking?

Well, if I had a chunk of cash to begin with, or could fork out more than $700 a month, I could grow my ASX dividend income portfolio faster.

For instance, if followed my initial plan, but began by investing a $100,000 lump sum, I could boast a million-dollar portfolio in just 25 years.

The post How much should I invest in ASX shares to quit work and live only off dividend income appeared first on The Motley Fool Australia.

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