What would a $50,000 annual passive income get you? Perhaps a new car every year, multiple luxury international holidays, or even an early retirement. That passive income could be yours in just 11 years with some strategic – and perhaps intense – investing on the ASX.
It's no doubt been done before, and it might even be done again. But it won't be easy.
It will likely take a lot of capital, a diverse portfolio of quality dividend shares, a pinch of good luck and, of course, the magic that is compounding.
Indeed, compounding is a key part of billionaire investor Warren Buffett's "secret sauce".
So, how exactly might one build a $50,000 passive income in just 11 years? Let's take a look.
How much do you need to invest to realise a $50k passive income?
First, one should consider the average dividend yield on offer from their prospective ASX shares. That is, the ratio between their cost and how much they pay out in dividends each year.
The higher the dividend yield, the less an investor will need to fork out to earn $50,000 in passive income each year.
However, sustaining a high dividend yield can be challenging for a company. Thus, I personally believe a lower, reliable dividend yield is more attractive than higher, less sustainable offerings.
Let's say one could earn an above-average dividend yield of 6%. At that rate, an ASX investor would need a portfolio worth around $835,000 to receive $50,000 of passive income a year.
That's a hefty sum for most. Fortunately, it doesn't need to be invested in one sweep.
How to build an $835k dividend portfolio in 11 years
The S&P/ASX 200 Index (ASX: XJO) rose 9.55% on average each year over the last three decades. While such a return isn't guaranteed for the coming three decades, let's assume it will hold out for the next 11 years.
At that rate, one would need to invest $46,150 each year – or $887.50 a week – for 11 years to build a portfolio worth $835,000.
Though, in that time, they would have forked out just $507,650 – that's compounding, folks!
On the other hand, if you had a sizeable nest egg to invest initially – say $200,000 – it would take just $16,000 of additional annual investment to reach our figurative target in 11 years.
Expanding the horizon
Of course, such an intense investing strategy won't suit most Aussies' budgets. But what if you had 25 years to play with?
Well, a $9,100 annual investment – assuming a 9.55% return – could see one with an ASX portfolio capable of providing $50,000 of passive income in that time. That equals just $175 a week.
It's worth remembering, however, that no investment is guaranteed to provide returns and past performance isn't an indication of future performance.
