Most of us want a second income or side hustle. It's certainly a little unsettling to rely on one primary course of income when you think about it. Although it's good practice to build up a rainy day fund of savings, the threat of losing one's job is something that most of us would still find (understandably) terrifying regardless.
But having a source of secondary, passive income would certainly help allay much of those fears.
However, just saying that you want a second source of passive income is the easy part. Finding a viable side hustle is the hard ask.
Do you start a business out of your garage? Or perhaps doing a podcast or starting a YouTube channel is the way to go? Then there's always that fan favourite of drop shipping to consider…
But the side hustle that perhaps requires the least effort is right in front of us: investing in ASX dividend shares.
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How can shares give you passive income?
ASX dividend shares are just as viable as a side source of passive income as anything else. And dividend shares pay out income by their very nature. Most investors enjoy a paycheque from their dividend shares every six months, and sometimes even more frequently.
And the secondary income you can receive from dividend shares is truly passive: you will get paid if you own the shares. There's no further qualification needed. You can be sick or healthy, old or young, working or not working.
Now you might think that picking and choosing the right quality dividend shares that pay you income is hard work.
To a certain extent, this is true. No one wants a lemon in the form of the dreaded dividend trap: a company that seemingly offers a high dividend yield, only to cut it down the road.
So building your own share portfolio consisting of individual, dividend-paying companies can require a lot of effort, education and dedication. Some people love this hustle though, so this might be a perfect way to build up a high-performance source of secondary income.
For those who truly want a passive income, there is a path open for them as well. It's investing in an ASX index fund.
An index fund tracks a broad swathe of a country's share market. Such a fund, for example, will hold everything from Commonwealth Bank of Australia (ASX: CBA) and Woolworths Group Ltd (ASX: WOW) to JB Hi-Fi Limited (ASX: JBH) and Block Inc (ASX: SQ2) here in Australia.
The easiest side hustle out there?
The best thing about an index fund is that it does all the work for you. To illustrate, most ASX index funds tack the S&P/ASX 200 Index (ASX: XJO). The ASX 200 Index has a mandate to only hold the largest 200 companies listed on our share market.
If a company does well over time, its value will increase, and have a heavier presence in the index, meaning that our index fund will buy more of its shares over time. Conversely, if a company does poorly and loses value over time, it will be progressively weeded out of the fund.
The ASX 200 is rebalanced every three months or so, so this process is always happening in the background. And you as the index fund investor only have to leave it in the bottom drawer and collect the dividend distributions that your fund will pay out.
Yes, index funds usually pay dividends, simply because they hold so many dividend shares within them. If the said fund holds CBA and Woolworths shares, you will be passed on any dividends the funds receive from these companies.
ASX 200 index funds typically offer dividend distribution yields of anywhere between 3% and 8%, plus some franking credits too.
So in this way creating a side hustle by investing in dividend shares is a great way anyone can start a secondary source of passive income.
It might not make you as much money upfront as starting a wildly successful business or podcast. But unlike these two other paths, the effort required can be as low as you'd like.
