Your superannuation is more than just a nest egg for retirement, it can also be a fantastic tool to generate a consistent passive income for when you stop working.

But how much passive income could a $900,000 balance actually generate each month?

Let’s take a look.

What passive income can I earn off my $900,000 superannuation balance?

To calculate your potential passive income, you simply need to multiply your total superannuation balance by the overall dividend yield of your portfolio.

But the catch is that the answer varies widely depending on what dividend yield you pick.

For example, $900,000 x 3% = $27,000 per year in dividend payments.

But if your portfolio has a slightly higher dividend yield of around 4%, your passive income will be higher. That’s because $900,000 x 4% = $36,000 per year in dividend payments. 

If your superannuation portfolio yields closer to 5%, you could earn $45,000 every year in dividend payments off the same superannuation balance ($900,000 x 5% = $45,000).

At a 6% yield, you could earn an annual passive income of around $54,000, and at 7%, it could be even higher, at around $63,000.

And so on… 

As your dividend yield increases, the passive income you can earn from your $900,000 superannuation balance also increases.

These figures are based on cash dividends before any tax or franking credit benefits.

I want to earn around $45,000 per year in passive income off my superannuation. What ASX shares should I invest in?

To earn around $45,000 per year in passive income from a $900,000 superannuation balance, you’d need a portfolio yielding around 5%. There is a large range of good-quality ASX shares around this level. 

Here are some of my top picks.

Transurban Group (ASX: TCL), Origin Energy Ltd (ASX: ORG), Woodside Energy Group Ltd (ASX: WDS) and Harvey Norman Holdings Ltd (ASX: HVN) are all good-quality ASX shares which yield around 5% at the time of writing.

What are my options if I want to go for an even higher yield around 7% or 8%?

Again, there are several options, but you need to be aware that higher yielding ASX shares are generally associated with higher risk.

But the good news is that your passive income will be higher if you strive for this target. A 7% or 8% yielding superannuation portfolio, around $900,000 in size, can earn between $63,000 and $72,000 in passive income over the course of a year.

There are still some good options to consider too. WAM Leaders (ASX: WLE), Atlas Arteria Ltd (ASX: ALX) and Beach Energy Ltd (ASX: BPT) all yield around the 7% to 8% level at the time of writing.

Diversification is key

If you want a portfolio yielding around 5% or even 7%, it doesn’t mean that every investment in that superannuation portfolio has to yield that level. It can be a combination that yields 5% or 7% overall.

And remember, you don’t need to invest the whole sum in one go. Start with a monthly investment and let compounding do some of the hard work for you.

I’d look at splitting my superannuation portfolio into investments across several different yielding assets, preferably across different sectors.

This diversification strategy means that if one asset drops in value, its performance can be offset by other ASX shares, leading to a more consistent overall result.

The post How much passive income can I earn off a $900,000 superannuation balance? appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Transurban Group. The Motley Fool Australia has positions in and has recommended Harvey Norman and Transurban Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Superannuation is naturally suited to long-term investing.

For many Australians, the money could remain invested for decades. That gives compounding plenty of time to work.

And I think some of Warren Buffett’s most famous investing principles fit that timeframe remarkably well.

Start with businesses you understand

Buffett has spent decades investing in companies whose economics he understands.

I think that is a sensible place to start when choosing ASX shares for a self-managed superannuation fund (SMSF).

Rather than chasing whichever sector is attracting the most attention, I would focus on businesses where I can clearly explain how they make money, why customers keep coming back, and what could make them more valuable over time.

That could include a major bank such as Commonwealth Bank of Australia (ASX: CBA), a resources giant such as BHP Group Ltd (ASX: BHP), or a healthcare business such as CSL Ltd (ASX: CSL).

The important point is not owning those particular companies. It is being able to understand the investment well enough to remain confident through inevitable periods of market volatility.

Look for lasting competitive advantages

Buffett has frequently focused on businesses with sustainable competitive advantages.

For an ASX investor, I would look for qualities such as strong brands, loyal customers, economies of scale, valuable technology, or services that would be difficult for competitors to replicate.

Pro Medicus Ltd (ASX: PME) is one example that comes to mind.

Its Visage medical imaging platform has become embedded within major hospital systems, where reliability and performance are extremely important. Replacing critical healthcare software is not something a hospital is likely to do casually.

That type of customer relationship can help a strong business keep growing for many years.

I think these are exactly the sorts of companies worth looking for when the goal is building wealth over decades rather than finding the next quick winner.

Let compounding do its job

Buffett’s extraordinary wealth was not created from one brilliant investment. A huge part of the story is the length of time his capital has been compounding.

Superannuation investors have an advantage here because retirement savings are usually invested over a very long period.

If a company can keep increasing its earnings, reinvesting successfully, and becoming more valuable, shareholders can benefit as that process continues.

This is why I would be reluctant to constantly trade a superannuation portfolio. A great business does not suddenly become a poor long-term investment because its share price has a difficult month.

Giving strong companies time can be one of the most important parts of the strategy.

You don’t have to pick shares

There is another Warren Buffett lesson I think is especially relevant.

Despite his remarkable success selecting individual companies, Buffett has repeatedly argued that most investors can do very well with a low-cost index fund.

Australians could apply that idea through a broad exchange-traded fund (ETF).

The Vanguard Australian Shares Index ETF (ASX: VAS), for example, provides exposure to hundreds of Australian companies through one investment.

An investor wanting greater international diversification could also consider a broad global fund or something like the iShares S&P 500 AUD ETF (ASX: IVV).

This approach removes the need to identify which individual companies will outperform. Investors can instead capture the returns generated by a large collection of businesses and concentrate on remaining invested.

That may sound less exciting than trying to find the next ten-bagger, but Warren Buffett’s philosophy has never been about making investing exciting.

It is about making sensible decisions and allowing time to work in your favour.

Foolish takeaway

I would not try to turn a SMSF portfolio into a replica of Berkshire Hathaway.

Instead, I would borrow the principles that have helped Warren Buffett invest successfully for decades: understand what you own, favour strong businesses, think long term, and avoid unnecessary activity.

For investors who enjoy researching shares, that could mean patiently owning a collection of high-quality ASX businesses.

For everyone else, a low-cost diversified ETF could make the process much simpler.

The post How to build your superannuation the Warren Buffett way appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in CSL, Commonwealth Bank Of Australia, and Vanguard Australian Shares Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway, CSL, and iShares S&P 500 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Pro Medicus. The Motley Fool Australia has recommended BHP Group, Berkshire Hathaway, CSL, Pro Medicus, and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

I believe the ASX share market is the best place to find passive income opportunities due to the large dividend yields. ASX dividend shares are a great place to hunt for ideas.

When you combine a generous dividend payout ratio with franking credits, you can end up with an impressive dividend yield.

I’m going to highlight two listed investment companies (LICs) in this article, both of which offer impressive dividend yields.

LICs enable investors to invest in a portfolio of shares in a single investment. The structure allows the LIC to turn long-term investment returns into a steady (and rising) payout.

I’m going to talk about two of my favourites.

PM Capital Global Opportunities Fund Ltd (ASX: PGF)

This LIC targets global shares to generate impressive returns. Its investment focus can change over the years, but currently some of the themes it has invested in include European banks, industrial metals, healthcare, industrials, USA banks, consumer and staples, leisure and entertainment, and housing in Ireland and Spain.

It currently has 40 positions, which I think is ample diversification for a professionally-run portfolio.

Past performance is not a guarantee of future performance, but its portfolio has returned an average of 16.8% per year since December 2013. That level of return has allowed this ASX dividend share to deliver share price growth, a rising dividend and a good dividend yield.

Over the past year, the PM Capital Global Opportunities Fund share price has risen by well over 100%. Its annual dividend per share has been hiked every year over the past decade aside from FY23 when it maintained its payout. That’s an impressive record of reliability.

The business intends to hike its annual payout in FY27 by 10% to 16 cents per share. That translates into a grossed-up dividend yield of 6.8%, including franking credits, at the time of writing. I expect the future payouts will be even bigger.

WAM Leaders Ltd (ASX: WLE)

The other ASX dividend share I want to highlight is WAM Leaders, a LIC run by Wilson Asset Management (WAM) that targets large, quality ASX shares.

By being active with its holdings, rather than just passively holding the largest stocks, WAM Leaders has managed to deliver an average return per year of 12.1% since its inception in May 2016, outperforming the ASX share market by an average of close to 3% per year.

Currently, some of its ‘overweight’ investments are focused around real estate businesses and major property developers.

That investment style, as well as having a good understanding of macroeconomic conditions, has allowed WAM Leaders to hike its annual dividend per share every year since FY17.

Its latest annual dividend per share was 9.6 cents in FY26. That equates to a grossed-up dividend yield of 10.3%, including franking credits, at the time of writing.

The post Get paid huge amounts of cash to own these ASX dividend shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison 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.