Do you want to replace your entire wage with dividends? It’s definitely possible to do it with ASX dividend shares.

I think having excess cash in the bank making interest at less than 1% just seems like a missed opportunity.

Before the coronavirus, wage growth was low and switching jobs seemed like the only way to get a good wage increase. These days ASX dividend shares may be the best way to boost your income.

The type of ASX shares that you could be looking at depends on how much dividend income you’re trying to make and how quickly.

You need to replace your wage fairly soon

You could be at a stage in life where retirement is coming up soon. Perhaps you are in a physical job and you won’t be able to do that for much longer. If this kind of situation describes you then high dividend yields could be the answer. But whatever you pick still needs to have a bit of potential growth too.

If you’re at retirement age and you aren’t rolling in money, you could be eligible for the pension or part pension which could help supplement your income needs.

Maybe you have $100,000 or $200,000 to invest to boost your income. The overall ASX share market is not a bad option for dividends, with a long-term investment in Vanguard Australian Shares Index ETF (ASX: VAS). The UK share market also has a solid dividend yield, which we can access through Betashares FTSE 100 ETF (ASX: F100)

There are also some listed investment companies (LICs) with big dividend yields like WAM Research Limited (ASX: WAX) and Naos Emerging Opportunities Company Ltd (ASX: NCC). Both of these LICs have grossed-up dividend yields of more than 9% and have paid reliable dividends over the past several years. They both look at smaller shares which have more growth potential than blue chips. A $100,000 portfolio with a 9% dividend yield makes $9,000 a year before accounting for income tax.

You have longer to replace your wage

You may not have an urgent need to build your income. In that case it’s probably better to go for ASX dividend shares that have good yields but are still generating growth over the long-term.

ASX blue chips like Wesfarmers Ltd (ASX: WES) and Macquarie Group Ltd (ASX: MQG) have been two good options that combine dividends and growth. Real estate investment trusts (REITs) like Rural Funds Group (ASX: RFF) are also solid income options. Infrastructure shares such as APA Group (ASX: APA) can also be reliable dividend payers.

However, some of the best ASX dividend shares could be ideas that have a solid starting yield, keep growing their dividend and can make capital gains over the long-term.

I’m thinking about shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Magellan Global Trust (ASX: MGG), WAM Microcap Limited (ASX: WMI), Future Generation Investment Company Ltd (ASX: FGX) and Brickworks Limited (ASX: BKW).

Foolish takeaway

I’m aiming to replace my work earnings with dividends over time with many of the businesses I’ve named above. The younger you are the easier it is to plan ahead for your portfolio and benefit from compound interest. It just takes time. Plan ahead to replace your earnings. I think a monthly investment plan is a good routine. Eventually you’ll reach excellent wealth and dividends.

More reading

• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?
• 3 ASX dividend shares for retirees
• 3 ASX shares for a beginner’s portfolio
• Are Macquarie Group shares worth investing part of $3,000 into this June?
• ETFs I’d pick to build a passive portfolio

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, MAGLOBTRST UNITS, RURALFUNDS STAPLED, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, Macquarie Group Limited, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group and Wesfarmers Limited. 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.

The post How to replace your entire wage with dividends appeared first on Motley Fool Australia.

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The 2020 stock market crash has caused many investors to experience significant paper losses on their portfolios. In the short run, further declines cannot be ruled out due to the possibility of a second wave of coronavirus and its potential impact on the world economy.

However, now could be the right time to buy high-quality stocks while they trade on low valuations. By adopting a long-term view and reinvesting dividends received where possible, you could capitalise on the recent market crash to increase your chances of making a million.

A long-term view

As mentioned, the short-term prospects for the stock market are highly uncertain. Previous bear markets have included brief market rallies that have not lasted for a sustained period of time. Therefore, while many stocks have risen from their recent lows, there is the potential for them to deliver disappointing returns in the coming months.

As such, adopting a long-term view towards your stocks could prove to be a highly worthwhile move. The stock market’s past performance shows that it often has periods of negative growth, but in the long run it has historically delivered relatively high returns compared to other mainstream assets.

By accepting that your investments could experience difficult periods over the short run, and allowing them the time they need to deliver high returns, you could increase your portfolio’s growth rate.

Focusing on value

It can be tempting to simply buy the cheapest stocks you can find in a market crash. However, some industries and businesses may fail to make a comeback from the current difficulties they are facing. They may, for example, have high debt levels or be void of a clear competitive advantage over their peers.

Therefore, it is important to consider the quality of a business, as well as its price, before buying it. In doing so, you can unearth the best value stocks that are on offer. They may be better placed to survive the upcoming economic challenges facing the world economy, as well as deliver a strong recovery relative to their peers over the long run.

Reinvesting dividends

A large proportion of the stock market’s historic total returns have been derived from the reinvestment of dividends. Therefore, reinvesting your income returns whenever possible following the recent market crash could boost your chances of making a million.

With many stocks currently trading on low valuations following their recent declines, now could be an opportune time to make use of your dividend income stream through buying high-quality stocks at low prices. You may even wish to reinvest in your existing holdings through an automated dividend reinvestment service. Over time, this could lower your average purchase price and enable you to benefit to a greater extent from the stock market’s likely long-term recovery.

More reading

• Is this ASX small cap the best placed to benefit from the $700m HomeBuilder grant?
• Invest like Warren Buffett with these ASX 200 shares
• 3 ASX dividend shares for retirees
• 3 ASX shares for a beginner’s portfolio
• Is 2020 a good time to get a credit card?

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The post Stock market crash 2020: 3 steps I’d take to make a million appeared first on Motley Fool Australia.

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