A $10,000 investment in ASX shares can provide a substantial passive income given time to grow. In fact, such an investment could bear as much as $500 per month in dividends.
Here's how I'd aim to turn a respectable lump sum into a considerable income stream, using only ASX shares.
Realising a $500 monthly passive income from ASX shares
Many companies listed on the ASX routinely rake in more cash than they need. So, rather than stash it in a bank account somewhere, they hand bite-sized parcels of money to shareholders – known as dividends.
While the amount usually offered might seem small, it can add up quickly.
Particularly if I were to use my dividends to buy more shares, thereby compounding my returns and essentially snowballing my portfolio.
And that's exactly how I'd aim to turn a $10,000 investment into a portfolio of ASX shares capable of providing $500 of passive income a month.
Growing my ASX passive income portfolio
But my strategy will take time.
Assuming I could realise a consistent 8% dividend yield, my $10,000 investment would bring in $800 of dividend income each year. That's nothing to scoff at, but it's a far cry from my goal.
To bring in $500 of passive income a month – or $6,000 a year – my portfolio of ASX shares would need to be worth $75,000, assuming an 8% dividend yield.
And fortunately, I needn't fork out any more to get there.
If I were to reinvest all the dividends I receive, I could grow my $10,000 portfolio into $75,000 worth of ASX shares in just under 27 years. That's not bad for very little effort.
Though, it might be a little long for my investment horizons.
Speeding up the process
To speed things up, I might decide to invest my spare cash as well. I think I could spare $100 a week, or $5,200 a year.
At that rate, and assuming I still compounded my returns, it would take me just eight years to reach my goal of holding a passive income portfolio worth $75,000, despite having invested just over $41,000 to build it.
Of course, that assumes my dividend yield stays at 8% – an unlikely happening given the market's ups and downs, and past performance isn't an indication of future performance.
Though, it also assumes my shares won't appreciate in value, while the market has historically always gone up.
3 ASX 200 shares offering an average 8% dividend yield
While dividend yields of around 8% are generally difficult to rely on as the passive income they provide is often unstable, they're not as rare as they might seem.
For instance, ASX 200 shares Super Retail Group Ltd (ASX: SUL), Fortescue Metals Group Ltd (ASX: FMG), and Ampol Ltd (ASX: ALD) currently offer an average yield of 8.4% between them.
Thus, finding notable ASX passive income shares might not take all that much time or effort.
