If I were to offer you an additional $8,000 every year, would you turn it down? I didn't think so. Well, such a second (passive) income could be on offer for a strategic ASX investor with $10,000 to put down.
But the journey to such a goal likely won't be a quick one. Here's how I'd use time to my advantage to build a second income with ASX shares.
Turning $10k into an $8k second income with ASX shares
If I had $10,000 of spare cash and a dream of realising a second income, I might turn to the ASX.
Not only does the market provide potential for both capital appreciation and passive income, but it also doesn't require the sort of lump sum payment that, for instance, investing in property often demands.
Say, I could realise a dividend yield of around 8%. That means that, however much I invest, I could hope to receive 8% back each year through cash dividends.
That's a relatively high yield, but I think it's doable. For instance, shares in BHP Group Ltd (ASX: BHP), Elders Ltd (ASX: ELD), and Ampol Ltd (ASX: ALD) boast an average dividend yield of 8.49% at the time of writing. Though, past performance isn't an indication of future performance.
My $10,000 invested across a diverse handful of ASX shares yielding an average 8% would see me with a second income of just $800. While nice, that's not exactly life-changing.
That's why I'd make time my friend and compound my returns.
Making the most of the years to come
If I wanted to receive an $8,000-second income and could realise a sustainable 8% dividend yield, I would need an ASX portfolio worth around $100,000.
That's right, nine times the size of our figurative nest egg. But getting there could be easier than it might seem.
By taking any dividends I might receive and using them to buy more shares, my $10,000 investment could grow to be worth $100,000 in three decades. That's not too shabby if I do say so myself.
However, I could speed up the process by regularly adding any spare cash to my portfolio.
If I could muster up, say, $500 a month – generally the minimum one can invest in ASX shares – to sink into my portfolio, and did so consistently, I could realise my ideal second income in just 10 years.
Though, that projection doesn't account for any brokerage fees. It's also worth noting that no investment is guaranteed to provide returns or downside protection.
Patience is key
Unfortunately, fortunes are rarely built in a day. Investing will generally demand a large sprinkling of patience and a lot of trust in your own decisions.
However, if one is willing to take a long-term approach, investing on the ASX can be incredibly rewarding, even providing an entire second income!
