Looking to turn ASX shares into a healthy second income?
You're not alone.
And the good news is you don't need a fortune to get started.
In fact, as we'll walk through below, you can potentially build a passive second income of almost $14,000 a year by investing as little as $100 a month in ASX shares.
Now this won't happen overnight. And you will need to invest in the right ASX shares to reach that goal.
Don't worry though. Not every stock you invest in needs to be a winner to secure that second income.
Just so long as the majority marches higher over time, a few stragglers won't bring you down if you've properly diversified your holdings. An important step there is selecting different promising companies operating in different sectors and locations.
Garnering a second income from ASX shares
An important factor in getting to our second income of $13,999 a year from ASX shares will be reinvesting the dividends we receive. That enables us to tap into the magic of compounding.
To give you an idea of how much difference that can make, the S&P/ASX 200 Index (ASX: XJO) has gained 18% over the past five years.
Over that same time the S&P/ASX 200 Gross Total Return Index (ASX: XJT) – which includes all cash dividends reinvested on the ex-dividend date – has gained 36%. Or twice as much!
And with many ASX 200 shares offering fully franked dividends, that second income comes with some handy potential tax benefits.
So, how will we get to that second income of $13,999 a year with just $100 a month in ASX shares?
Well, we'd aim to slightly outperform the 7.2% annual gains posted by the ASX 200 Total return index over the past five years.
By accepting a little more risk, and doing plenty of research, we'd aim for a 9% accumulated return, which includes dividends plus share price gains.
At 9% per year, and reinvesting those dividends, that would see us earning a second income of $563 a year in five years.
By 10 years that's grown to $1,512.
At 20 years that's reached $5,220.
And in 30 years, our ASX share portfolio would be delivering a yearly second income of $13,999 a year.
Now we could get there sooner if we invested more than $100 a month.
And we should also bear in mind that in 30 years, inflation will most likely have reduced the spending power of that $13,999 second income.
Three high-yielding ASX stocks to consider
There are a number of high-yielding ASX shares to consider when building your second income portfolio.
While I recommend a portfolio of at least 10 dividend stocks, these three blue chips are worth running your slide rule over:
- BHP Group Ltd (ASX: BHP) shares trade on a trailing yield of 8.5%
- Woodside Energy Group Ltd (ASX: WDS) shares trade on a trailing yield of 10.5%
- Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares trade on a trailing yield of 6.5%
