How to make $56,000 in passive income by investing $500 a month in ASX shares

This year has been rough on many ASX shares, but I believe the market still offers plenty of opportunities for investors seeking out notable passive income.  

The S&P/ASX 200 All Ordinaries Index (ASX: XJO) is down 6% year to date. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has slumped 5% in 2022 so far.

No doubt, plenty of investors will be looking for some inspiration right now. If that sounds like you, you’ve come to the right place!

I’ve crunched the numbers on how I would build a portfolio of ASX 200 dividend shares potentially capable of providing $56,000 in annual passive income by investing just $500 a month. And it involves near-minimal stock picking.

Keep reading to find out how I would aim to retire comfortably with substantial dividend income.

How I would aim for $56,000 of passive income from ASX shares

Stock picking isn’t for everyone. It not only takes time but it generally demands plenty of patience, emotional discipline, and nerve. And even professional stock pickers have been known to get it wrong from time to time.

But there is a simple way to realise the benefits of investing in the market without stock picking.

If I were aiming to receive $56,000 of passive income each year from ASX shares, investing just $500 a month, and didn’t want to research which shares to buy to best capitalise on my investment, I would seek out an index fund.

Personally, I would choose a fund that tracks the ASX 200 – of which there are many.

According to data from S&P Dow Jones Indices, the ASX 200 recorded an average annual growth rate of around 6.6% over the 10 years to 2021 – before considering dividends.

Investing $500 per month into a fund that gains 6.6% each year would see my portfolio with a value of around $531,000 in 30 years.

That’s not bad considering my total outlay would come to a grand total of just $180,000. That’s the power of compounding! Of course, it’s worth mentioning here that past performance isn’t an indication of future performance.

But that’s not all. The real magic kicks off when we consider dividends.

Right now, the SPDR S&P/ASX 200 (ASX: STW) – an exchange-traded fund (ETF) tracking the ASX 200 – offers a 4.51% dividend yield.

Factoring in that figure, and assuming I’d make use of a dividend reinvestment plan (DRP), my figurative portfolio could grow to be worth $1,243,510 in 30 years’ time.

Now, a portfolio of ASX shares valued at $1.24 million and offering a 4.51% dividend yield would likely pay out slightly over $56,000 annually. That’s certainly nothing to scoff at. And it could provide capital gains to boot.

However, as I previously alluded to, nothing in investing is guaranteed, and past performance certainly doesn’t guarantee future performance. It’s also worth considering inflationary impacts when planning a long-term portfolio.

Still, such figures might provide inspiration for those that have found themselves disheartened by 2022’s downturn.

The post How to make $56,000 in passive income by investing $500 a month in ASX shares appeared first on The Motley Fool Australia.

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

• Profit down 57%, share price up 12%. What’s with this ASX 200 healthcare stock today?
• Bought $1,000 of ANZ shares 10 years ago? Here’s how much dividend income you’ve received
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Monday

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/ce4CXDT