Many investors think the possibility of generating a passive income from ASX shares is just a pipe dream.
However, it’s very possible to invest just $50 per day in your favourite companies and be able to retire with a strong portfolio.
How to generate a $50,000 passive income from ASX shares
$50 per day works out to be $18,250 per year invested in ASX shares. Let’s make some basic assumptions including no taxes or transaction costs and a steady 7% per annum return.
If we assume returns are calculated at the end of each year, we would invest $18,250 in ASX shares in year 1 with a return of $1,277.50 in the first year.
By continually reinvesting these returns into the share portfolio, and also maintaining the ongoing investment of $50 per day over 40 years, the portfolio would grow from $0 to $730,000 during this period.
This means that if you’re investing from the age of 25, you could retire with a $730,000 portfolio by age 65. That 7% return would then be worth a tidy $51,100 per year. Not bad for a passive income in retirement.
Which ASX shares could generate a 7% return?
It goes without saying that investment returns are never guaranteed.
A 7% return seems high but it is the approximate, long-run average return for global share markets. ASX income shares like Scentre Group (ASX: SCG) or Harvey Norman Holdings Limited (ASX: HVN) boast some pretty strong dividend yields.
But it’s not just income shares that could hold the the key to delivering 7% gains. ASX growth shares like Afterpay Ltd (ASX: APT) have rocketed higher in recent years and have easily exceeded 7% per annum gains.
Foolish takeaway
When it comes to investing, I still think diversification is the name of the game, especially over a 40-year time horizon.
If this quick example shows us anything, it’s clear that patience and discipline are the key to building long-term wealth.
If you want to set yourself up for retirement, keeping a long-term view of your goals is critical to success.
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More reading
- A good time to buy Commonwealth Bank shares?
- Could the Afterpay share price really be good value right now?
- Why National Storage shares are a great “set and forget” option for your portfolio
- Purchasing Openpay shares in March in would have pocketed you this return
- Why the Scentre share price could rise 88% in 2020
Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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