Index funds are becoming increasingly popular on the ASX. According to fund provider BetaShares, August saw a record $7 billion flow into ASX index funds and exchange-traded funds (ETFs) in Australia, pipping what was a previous record of $6.83 billion in July. Are you one of those investors who put additional cash into an ASX ETF or index fund last month? If you weren’t, let’s talk about why you might want to change that in September.

The ASX is full of ETFs and index funds. More seem to pop up every month, with more than 500 different ETF products now available on the ASX.

Before we get too much further, let’s make an important distinction. One can buy an ETF for almost every investing goal one can think of. Want to invest in oil futures? There’s an ETF for that. Just as there is for buying Korean shares, Japanese stocks, global mining companies, global healthcare companies, banks, defence companies… You name it. ASX investors have never been more spoiled for choice when it comes to ETFs.

Index funds and ETFs on the ASX

What I am talking about today are simple, plain-Jane index funds. These are ETFs that invest in a straightforward, market-wide index that covers every meaningful company in a particular market.

The most obvious examples are, of course, ASX index funds. There are a plethora of such funds available right now for the Australian share market. Most track the S&P/ASX 200 Index (ASX: XJO), which is an index that covers the largest 200 public Australian companies, weighted by market capitalisation (size). A few outsiders opt for the larger S&P/ASX 300 Index (ASX: XKO) instead.

To put it simply, when you buy an index fund that tracks the ASX 200 or the ASX 300, you are buying a small piece of each of those 200 or 300 companies. That market-cap weighting means that the larger companies get a larger allocation in the ETF than the smaller ones. To illustrate, an ASX 200 ETF will (right now anyway) usually allocate about 11.6% of its portfolio to BHP Group Ltd (ASX: BHP), but less than 0.5% to smaller stocks like JB Hi-Fi Ltd (ASX: JBH).

These allocations are readjusted every few months to reflect the companies’ share prices (thus valuations). This means that, over time, the index fund adds to the shares that perform well, and sells down the stocks that fare poorly. This is all done passively, without any input required from the fund’s investors or managers.

In this way, an index fund is guaranteed to match the performance of its ‘market’. After fees, of course. Most investors in Australia who choose to buy and invest in individual ASX shares do so to try and beat the market, that is, get a better return than an ASX index fund. Some succeed, but not many. As we discussed last week, statistics show that the vast majority of investors, even those whose job it is to invest, don’t beat the market over long periods. Those who do are exceptionally skilled, or (more often) are just plain lucky.

Heads you win, tails you don’t lose

That’s why I think almost every ASX investor should be allocating at least some portion of their overall portfolio to index funds. If you enjoy stock picking, and think you have what it takes to beat the market, perhaps an allocation of 30%, 40% or even 50% to index funds is still prudent. That way, up to half of your portfolio will always match the market’s return. If your stock picking is successful, you still get to beat the market overall. If it falls short, your index funds can help ease the burden of that underperformance.

Of course, this won’t suit everyone, and you should always consider your own circumstances and goals before implementing an investing strategy. But at the end of the day, I think most Australians who invest in the share market will be financially better off if they allocate at least some portion of their portfolios to simple, cheap index funds.

The post Every ASX investor should own an index fund. Here’s why appeared first on The Motley Fool Australia.

More reading

• WiseTech shares: 3 reasons to buy and 3 reasons to sell
• Macquarie says this ASX uranium producer has more than 15% upside
• 3 ASX shares down 40% to 80% I’d buy on the cheap
• 2 ASX ETFs to buy: expert
• How much passive income can I earn off an $800,000 superannuation balance?

Motley Fool contributor Sebastian Bowen 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 recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

A difficult year can sometimes create an opportunity for long-term investors.

Several ASX shares I like have been hit hard over the past 12 months despite having plenty of growth ahead.

Here’s why I think this has created a buying opportunity.

Netwealth Group Ltd (ASX: NWL)

Netwealth shares have had a particularly difficult year and are down almost 40%.

I remain positive on the wealth management platform provider. The company continues to attract money onto its platform as financial advisers and their clients look for better technology to manage investments, superannuation, and reporting.

I think there is still a long runway here. Australia’s pool of superannuation and investment assets should continue growing over time, while Netwealth has been steadily increasing its share of the platform market.

The company is also investing in technology that could make advisers more efficient. Its proposed acquisition of Paradino adds AI-enabled workflow and automation capabilities, which I think could strengthen the platform rather than weaken its position as technology changes the industry.

So, after the share price weakness, I think investors are getting a much more attractive entry point into a business that is still growing.

Temple & Webster Group Ltd (ASX: TPW)

Online retailer Temple & Webster has also been punished by the market. Its shares are down over 80% on a 12-month basis.

I still like the long-term opportunity because online furniture and homewares remain a relatively small part of the broader Australian market.

Temple & Webster does not need to dominate the entire industry to become a much larger business. It simply needs online penetration to keep increasing while the company continues taking share.

Its online model also allows it to offer a large product range without needing the same physical store network as traditional retailers.

The business is targeting significant revenue growth over the next few years, and I think the current share price gives investors the chance to buy before that opportunity is fully reflected again.

There are risks if consumer spending remains weak, but I would be willing to look through shorter-term conditions and focus on where the business could be several years from now.

SiteMinder Ltd (ASX: SDR)

SiteMinder is another ASX share I think has become interesting after a difficult period. Its shares are down over 60% since this time last year.

The company provides technology that helps hotels manage room distribution, bookings, pricing, and their connections with online travel platforms.

I like that SiteMinder sits behind an important part of how hotels operate.

As more accommodation providers move away from manual processes, the company has an opportunity to sell them more software and automate more of the work involved in managing rooms across different sales channels.

Products such as Channels Plus and Dynamic Revenue Plus could also help SiteMinder earn more from existing hotel customers over time.

The share price may remain volatile, but I think the underlying opportunity in hotel technology is still substantial.

Foolish takeaway

A bad 12 months does not necessarily change how I feel about an ASX share.

Netwealth, Temple & Webster, and SiteMinder have all had their challenges, but I can still see clear ways for each company to be much larger in the years ahead.

At lower share prices, I think all three are worth a closer look.

The post 3 ASX shares down 40% to 80% I’d buy on the cheap appeared first on The Motley Fool Australia.

More reading

• Buy, hold, sell: Netwealth, Tabcorp, Healius shares
• Should I buy Coles shares for passive income?
• 2 ASX 200 shares to buy and 1 to sell now
• Buy, hold, sell: Temple & Webster, Kelsian, Boss Energy shares
• Lovisa vs Temple & Webster: Which ASX retailer is the better growth stock today?

Motley Fool contributor Grace Alvino 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 Netwealth Group, SiteMinder, and Temple & Webster Group. The Motley Fool Australia has positions in and has recommended Netwealth Group and SiteMinder. The Motley Fool Australia has recommended Temple & Webster Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Superannuation is a fantastic tool to help build wealth to live off in retirement. And an $800,000 balance will provide enough money to live comfortably when the time comes.

But you don’t have to let it sit idly in the meantime.

Instead, you can invest your superannuation balance and generate a regular source of passive income for when you’ve stopped working.

But exactly how much passive income could a $800,000 superannuation balance generate each year?

Let’s investigate.

How much passive income can I generate from an $800,000 superannuation balance?

To calculate the potential passive income from an $800,000 superannuation balance, you need to multiply your total balance by the dividend yield of your portfolio.

It’s a simple calculation, but the problem is that the answer varies depending on the yield of the stocks you pick.

For example, a 3% yielding portfolio needs to be twice the size of one that yields 6% to earn the same passive income.

Which also means that as your dividend yield increases, the passive income you can earn from your $8000,000 superannuation balance climbs higher. 

Here’s a breakdown by yield. These figures are based on cash dividends before tax or franking credits. 

What can I earn from a 3% to 4% yielding portfolio?

If your superannuation portfolio has a dividend yield of around 3%, your passive income will be around $24,000 per year, because $800,000 x 3% = $24,000.

If your portfolio yields closer to 4%, your passive income could be closer to $32,000 every year ($800,000 x 4% = $32,000).

Major miners like BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) yield around this level. As do banking giant Commonwealth Bank of Australia (ASX: CBA) and conglomerate Wesfarmers Ltd (ASX: WES).

What passive income can I earn if my superannuation portfolio yields 5% or 6%?

If your superannuation portfolio yields closer to 5%, you could earn $40,000 every year in dividend payments off the same superannuation balance ($800,000 x 5% = $40,000).

At a 6% yield, you could earn an annual passive income closer to $48,000.

Classic dividend stocks like APA Group (ASX: APA), Transurban Group (ASX: TCL), and JB Hi-Fi Ltd (ASX: JBH) all pay around this level.

What about a portfolio yielding much higher, around 7% or 8%?

But if your portfolio has a slightly higher dividend yield of around 7% or 8%, your passive income will go up again to around $56,000 or $64,000, respectively.

Again, it’s possible to buy shares around this level, but there are fewer options.

Solvar Ltd (ASX: SVR), Waypoint REIT Ltd (ASX: WPR), and HomeCo Daily Needs REIT (ASX: HDN) all pay around this yield at the time of writing.

Is it possible to invest in ASX shares yielding 10% or higher?

It’s possible, but generally, the higher the yield, the higher the volatility and risk associated with the stock. 

If high yield and high risk are what you’re after, at a 10% yield, a $800,000 balance could earn around $80,000.

You could invest in ASX-listed stocks such as Tower Ltd (ASX: TWR) or Kina Securities Ltd (ASX: KSL). Another option is to invest your superannuation in a high-yielding exchange-traded fund (ETF), such as the VanEck MSCI International Value ETF (ASX: VLUE) or the VanEck Gold Miners ETF (ASX: GDX). These all yield 10% or more at the time of writing.

The post How much passive income can I earn off an $800,000 superannuation balance? appeared first on The Motley Fool Australia.

More reading

• Are the BHP and CBA share price headed for parity?
• 3 reasons to buy BHP shares for 2027
• Which big 4 bank stock will rise the most before the end of 2026?
• BHP Group vs Rio Tinto shares: Which pays better dividends?
• Up 52% and paying dividends: Are BHP shares a buy, hold, or sell today?

Motley Fool contributor Samantha Menzies has positions in BHP Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Transurban Group and Wesfarmers. The Motley Fool Australia has positions in and has recommended Apa Group and Transurban Group. The Motley Fool Australia has recommended BHP Group, 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.