$20k in your ASX share portfolio? Here's how I'd aim to turn it into passive income of $1,200 a month!

Looking for passive income? Then here's how you could get it.

| More on:
Woman holding $50 and $20 notes.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you're wanting to generate passive income, then ASX shares could be a great way to do it.

That's because many companies share a portion of their profits with their shareholders each year in the form of dividends.

Now, let's assume you already have a $20,000 ASX share portfolio. How could we turn that into passive income of $1,200 a month?

$1,200 of monthly passive income

Firstly, good job on building your investment portfolio. That's the first step out of the way.

The next step would be to do nothing, assuming your ASX share portfolio is diversified and filled with high-quality companies that have sustainable competitive advantages. If it isn't both of these, I would look to reshape it over a period of several months.

Once the portfolio is as we want it, we can then sit back and let compounding do its thing.

If we want $1,200 of monthly passive income, we're going to need to generate $14,400 of dividends each year. That's quite a big ask from a $20,000 investment, but in time we can get there.

With 5% dividend yields easy to find on the market, we are going to need to grow our ASX share portfolio to approximately $290,000 for it to generate $14,400 of dividends eventually.

Growing our portfolio

Over the last 30 years, the Australian share market has generated a total return of 9.6% per annum.

If we just invested $20,000 and left it to earn that level of return, it would take 29 years to get to our target level. At that point, we could reshape our portfolio to have a focus on passive income and then sit back and watch the dividends come rolling in.

But if you want to get there sooner, you could add to your portfolio on a regular basis.

For example, if you were to add $500 to your portfolio each month, you would get to $290,000 in 15 years. Or if you could afford to contribute $1,000 a month to your portfolio, then you would get there in 11 years.

While it may take a bit of effort, it will be worth it for a lifetime of passive income thereafter.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

A woman in a hammock on her laptop and drinking a smoothie
How to invest

How can I invest for passive income?

I think ASX shares are the best path to a second income.

Read more »

Three young people lie in the surf on a beach wearing santa hats.
How to invest

'The gift that keeps on giving': CommSec's tips on buying ASX shares for your kids this Christmas

If you want to buy ASX shares for your kids this Christmas, don't hold back.

Read more »

Smiling woman with her head and arm on a desk holding $100 notes out, symbolising dividends.
How to invest

$7,500 of savings? Here's how I'd turn that into $2,000 a month of ASX passive income!

Want to generate passive income? Here's how you can do it.

Read more »

Men standing together and defending the goal post symbolising defensive shares.
How to invest

Is your ASX share portfolio 'positioned too defensively'?

Being too defensive can cost you in the long run...

Read more »

A young cool man sits in a private jet wearing headphones and casual clothing.
How to invest

My ASX tips: How to become an Aussie millionaire

Stocks can be the ticket to wealth.

Read more »

a man sits on a ridge high above a large city full of high rise buildings as though he is thinking, contemplating the vista below.
How to invest

Why I just sold my biggest ASX stock holding

It's not always about money and the best returns. You need to be able to live with your investment decisions.

Read more »

A young man goes over his finances and investment portfolio at home.
How to invest

How to exploit the ASX's current weakness for long-term gain

Market weakness doesn't need to be the enemy. It can be your best friend.

Read more »

a man in a business suit sits happily leaning back into his hands behind his head with his feet on his desk and smiles broadly.
How to invest

2 things I'm doing to prepare for a 2024 stock market crash

Will the market crash in 2024? Here's why it doesn't matter to me.

Read more »