If you’re like me you probably don’t like the idea of working until you’re 70 (or even older). In my opinion, the best way to replace your wage is with dividends from ASX shares.
It’s not easy building the net worth necessary to support yourself and your family, particularly with wage growth and inflation at such low levels at the moment.
I believe that ASX dividend shares are the way to go because some of the best businesses have the ability to keep growing their profit and dividends at an inflation-beating pace to help replace your wage quicker.
The first thing you need to do spend less than you earn so that you can invest money into shares. Then it’s up to you to decide what type of dividend shares you want to go for:
High yield, low growth
If you want to retire as soon as possible then it could be a good idea to invest in higher-yielding shares and build up that income stream as much as possible. It will likely mean paying higher taxes until you get to your financial target, but a higher yield could mean you don’t have to save as much.
For example, a portfolio worth $750,000 with a yield of 6% will create an income of $45,000. But a portfolio worth $1 million will only generate income of $40,000 with a 4% yield.
It’s important to pay attention to the price you pay for high-yielding shares as well as lower yielding ones. Some of the shares at attractive prices with good yields I’d buy are: Rural Funds Group (ASX: RFF), Duxton Water Ltd (ASX: D2O), Future Generation Investment Company Ltd (ASX: FGX) and WAM Leaders Ltd (ASX: WLE).
Lower yield, higher growth
The other option is to consider shares that are growing at a good pace and are re-investing for more growth. It may take longer to reach your total dividend target, but the total returns will probably be better and the growth should continue well after you have reached your income target amount.
Businesses that are likely to grow their income over the long-term that could be worth a look are: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), WAM Microcap Limited (ASX: WMI), Altium Limited (ASX: ALU), Magellan Global Trust (ASX: MGG) and Webjet Limited (ASX: WEB).
If you keep investing you can definitely replace your wage with ASX dividend shares. I’m using a combination of lower yield and higher yield ideas for my portfolio.
I’ve also got my eyes on these leading ASX dividend shares which could rapidly help replace my working income with dividends.
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Motley Fool contributor Tristan Harrison owns shares of Altium, DUXTON FPO, 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 RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended DUXTON FPO and Webjet Ltd. 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.