How to build a $52,000 passive income with ASX shares

Imagine having an extra $1,000 arriving in your bank account every week without having to work for it.

That could make a huge difference to your lifestyle, particularly if you are approaching retirement.

And while building a portfolio capable of producing this income will take time, it is something you can start working towards today.

Here’s how.

Start by buying yourself some future income

One way to approach this goal is to think about how much income each investment could eventually provide.

For example, every $20,000 invested in a portfolio yielding 5% would generate $1,000 in annual passive income.

Build that portfolio to $100,000 and you’re looking at $5,000 a year. Reach $200,000 and the potential income doubles to $10,000.

Ultimately, you would need approximately $1.04 million invested at a 5% yield to generate $52,000 a year.

But of course, starting from zero means there is plenty of work to do before those dividends start paying the bills.

Let growth do the heavy lifting

Rather than chasing dividends immediately, I would start by focusing on building the portfolio’s value.

This could mean investing in quality ASX growth shares such as Goodman Group (ASX: GMG) and ResMed Inc (ASX: RMD), alongside established companies such as Wesfarmers Ltd (ASX: WES).

Exchange traded funds (ETFs) could also play a role, providing exposure to hundreds of Australian and international stocks.

The idea is to build a portfolio capable of growing over many years while reinvesting any dividends received.

Regular contributions would be equally important. Investing $1,000 a month and achieving an average annual return of 10% could potentially build a portfolio worth approximately $1.04 million in 23 years.

That return isn’t guaranteed, nothing is in the share market, but it demonstrates what consistent investing and compounding could achieve.

Increasing those monthly contributions as your income grows could also bring the target forward.

Turn your wealth into passive income

As the portfolio approaches its target, the investment strategy could gradually change.

Instead of focusing primarily on capital growth, investors could start directing more money towards companies offering attractive and sustainable dividends.

This could include infrastructure shares such as APA Group (ASX: APA) and Transurban Group (ASX: TCL), property investments such as HomeCo Daily Needs REIT (ASX: HDN), and dividend-focused ETFs.

The aim would be to achieve an average yield of approximately 5% without relying too heavily on any individual company.

Once the portfolio reaches $1.04 million, that yield would produce $52,000 annually before tax.

And if the underlying companies can grow their dividends over time, the income stream could increase as well, potentially helping it keep pace with rising living costs.

The post How to build a $52,000 passive income with ASX shares appeared first on The Motley Fool Australia.

More reading

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• In a tough retail environment, what’s the outlook for Wesfarmers shares?
• AGL Energy vs Wesfarmers: Which share delivers better passive income?
• How much could the Wesfarmers share price rise in the next year?
• Transurban Group share price: $4.5bn deal for bigger Sydney road stakes

Motley Fool contributor James Mickleboro has positions in Goodman Group and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group, ResMed, Transurban Group, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Apa Group, Goodman Group, ResMed, and Transurban Group. The Motley Fool Australia has recommended HomeCo Daily Needs REIT and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.