Building up a meaningful source of secondary income from the share market is one of the best ways of gaining passive income. ASX shares pay dividends, often with franking credits, and dividends are one of the best ways to receive passive income.
However, doing this isn't easy. It requires a lot of time, capital and discipline. So let's walk through how an investor might get to a secondary income of $100 per week using ASX shares.
So let's get the maths out of the way. $100 a week works out to be roughly $5,200 per year.
Let's take a simple ASX index fund, such as the Vanguard Australian Shares Index ETF (ASX: VAS). This exchange-traded fund (ETF) holds the 300 largest shares on our share market in its underlying portfolio.
This means an investment in this ETF basically exposes you to the profits of all 300 of those companies. In varying degrees, of course.
So because most of those 300 companies pay out consistent dividends, the Vanguard ETF passes through this income as dividend distributions.
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So how much do ASX shares pay out in income?
Over the past 12 months, investors have enjoyed distributions totalling $6.36 per unit. That works out to be a yield of approximately 7% on current pricing.
So if an investor wished to receive $100 per week (or $5,200 per year) for this ETF, they would have needed to have around $74,300 invested last year.
If an investor invested $100 a week and received the historical rate of return of 8.8% that the Vanguard Australian Shares ETF has delivered since its inception, it would take around a decade to amass $74,300 in invested capital, spitting out $100 a week in dividend returns.
That assumes the Vanguard Australian Shares ETF keeps its dividend payouts at 2022's levels going forward, which is not guaranteed, of course.
But this exercise shows exactly how ASX shares can be used to build up a stream of secondary income. What are you waiting for?
