ASX shares offer the potential of building a comfortable second income.
The Aussie market is fairly unique when it comes to dividends. That's because those dividends often come with franking credits, which can leave you with a good bit more money in your pocket come tax time.
Or better yet, money to reinvest into ASX shares.
If I had little to no savings at 30, I'd look into gradually building an ASX share portfolio to build that passive income stream.
Say $3 a day.
And with at least 35 years before retirement, I've got a lot of time to make up for those savings I didn't bank in my 20s.
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Start buying ASX shares now
35 years may seem like a long time.
But the sooner you begin to invest in ASX shares for passive income, the better your outcome is likely to be. That's because your investments will have longer to compound and grow your wealth.
Now, a lot of younger investors might opt to turn to a fund manager to choose their ASX shares for them.
That's a fine option.
But here at The Motley Fool, we prefer to do our own research and buy specific company shares to boost our long-term returns.
And there are some juicy yields being offered by ASX dividend shares.
Whitehaven Coal Ltd (ASX: WHC), for example, trades on a fully franked trailing yield of 10%.
Woodside Energy Group Ltd (ASX: WDS) trades on a trailing yield of 11.1%, also fully franked.
And ANZ Group Holdings Ltd (ASX: ANZ) shares pay a fully franked yield of 6%.
Good luck trying to get those kinds of returns from your deposit account.
How will I get there with $3 a day?
If I opted to hold off my retirement until 67, I'd have 37 years to build my $10,824 a year in passive income from ASX shares.
Investing just $3 each day works out to $1,095 per year.
With inflation in mind, I'll also increase that by 3% each year.
Now, a look at the ASX 200 Gross Index, which includes reinvested dividends, shows that the blue-chip ASX shares have returned an average of approximately 7% per year over the past five years.
Of course, those returns may be lower or higher over the next 37 years. But we'll take that to be the long-term average moving into the future for the purposes of this article.
With 7% returns per year, and increasing my $3 a-day investment by 3% each year to offset inflation, my investment in ASX shares will have grown to $270,604 by the time I retire at 67.
At that point I should be able to withdraw 4% each year without depleting that amount. This is known in the industry as the 'safe withdrawal rate'. That's because my portfolio should still be earning dividend income and hopefully seeing share price appreciation.
At that 4% per year, I'd have a passive income stream of $10,824 and change, every year!
Not bad.
Now I mentioned three high-yielding ASX shares above.
These might be ones to consider to help build your own second income.
But ideally, you want to invest in at least 10 ASX dividend shares, spread across different sectors, to reduce your risks.
Happy income investing!
