I'm sure many readers would agree that a passive income of $50,000 a year would be highly desirable.
Well, the good news is that this is possible with a combination of time, regular investing, and patience.
How can you generate a passive income of $50,000 a year?
The first step in earning a passive income of $50,000 is building your wealth gradually through investing.
Right now one of my favourite options for income investors is the Vanguard Australian Shares High Yield ETF (ASX: VHY).
I like this exchange traded fund due to its diversity. In just a single investment investors can gain exposure to many of the highest yielding blue chip dividend shares that the Australian share market has to offer.
This includes mining giants like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA) and the rest of the big four banks, and income favourites Telstra Corporation Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES).
Its units will typically provide investors with a dividend yield in the region of 5.5% per annum. This means that approximately $900,000 invested into this exchange traded fund would yield $50,000 in dividends each year.
So how do we get to the point we can invest $900,000 into this ETF?
Growing your wealth.
I believe the best way to grow your wealth is to invest regularly and over a long period of time.
While some years will have crises like we have experienced in 2020, over the long term the share market typically provides an average annual return of around 10%.
This means that if you invest $1,000 a month and your shares return an average of 10% a year, after 22 years your investments will be worth $950,000.
If you then invested that $950,000 into dividend shares yielding 5.5%, you'll be taking home an annual pay check of $52,250.
But which shares should you buy to grow your wealth?
When making long term investments I believe investors should focus on quality companies, with solid growth prospects, strong market positions, and sizeable market opportunities.
Shares such as design software company Altium Limited (ASX: ALU), biotherapeutics company CSL Limited (ASX: CSL), and cloud-based accounting company Xero Limited (ASX: XRO) tick a lot of boxes for me and could be worth considering.
