Reckon you could do with $500 of passive income each month?
So do I!
The excellent news is that, assisted by the power of ASX shares and compounding, such a flow of income is well within reach.
Let's explore how you could achieve this:
Just start with $30,000
First, we need to build up a nest egg.
I'll assume you can start with a savings stockpile of $30,000.
This is not an outrageous assumption as a National Australia Bank Ltd (ASX: NAB) study found earlier this year that the savings total of the average Australian is around $34,500.
If you construct a diversified portfolio of quality ASX growth shares with that $30,000, you could grow the investment to a passive income machine reasonably swiftly.
Such stocks could be ones like Goodman Group (ASX: GMG) and Altium Limited (ASX: ALU).
They play in vastly different fields — industrial real estate and technology — but have delivered returns of 110% and 75% over the past five years.
That's not bad considering that period included a huge COVID-19 market crash and a growth stock correction during 12 interest rate rises.
While past performance is no indicator of the future, let's use those numbers to hypothetically point out the power of compounding.
If your portfolio can perform at the average of those two sample shares, you have a compound annual growth rate (CAGR) of 13.92%.
If you can chip in an extra $200 each month along the way, you can really supercharge that growth.
After just seven years, your pot could be $100,389.
Amazing.
After seven years the passive income is flowing
Now you can start squeezing the sweet passive income juice out of that orange.
A monthly payout of $500 equates to $6,000 each year. That means you only need to get a 6% return out of the nest egg to achieve that level of income.
On the ASX, Australian investors are fortunate enough to have a range of quality dividend stocks to reap that level of yield and more.
And you don't even have to resort to the cyclicality of mining or big bank shares.
A couple of examples that come to mind are Accent Group Ltd (ASX: AX1) and Nick Scali Limited (ASX: NCK).
Accent operates a stable of fashion retail chains, such as The Athlete's Foot, while giving out a whopping dividend yield of 8.9%.
That's $8,900 of passive income annually, meaning $741 of monthly returns.
Furniture merchant Nick Scali doesn't quite pay out that much, with a 6.3% yield.
That still achieves our aim of $500 income per month.
But the pro for a stock like Nick Scali is that it has shown decent capital growth, with the share price growing more than 87% over the past five years.
So you can eat the passive income cake, and the pastry will keep growing too.
How good!
